Oil maintains its downhill course

Oil prices continued their decline, gaining momentum as traders in the futures markets either bailed out or made bets that more losses were on the way.

The Oman crude futures contract on the Dubai Mercantile Exchange lost US$1.05 on Wednesday, closing at $83.90. In London, the Brent contract was down 87 cents at $84.17, and in New York the West Texas Intermediate contract was down $1.36 at $80.48 late in the UAE afternoon.

Trading remained brisk after the previous day’s volume across all contracts was the highest since late 2012.

The market has been in decline since the midsummer peak, when Brent topped $115 a barrel, on a combination of factors – mainly the growing realisation that the global economy would grow only weakly this year and next.

The momentum has grown since the beginning of last month, when oil futures fell below $100 a barrel and the bearish mood has been fed by reports of economic slowdown in major economies, including Germany, China, Japan, Russia and Brazil, leading the IMF to lower its forecast for the world economy.

At the same time, there was ample and growing supply as conflict-related disruptions failed to materialise.

“Opec had been lucky because a boom in shale oil production [in the US] has been absorbed by disruptions elsewhere,” said Gary Ross, the chief analyst at Pira Energy Group, pointing to Libya, Iraq and Iran, which is subject to sanctions because of its nuclear programme. “But it is sort of running out of luck.”

Traders expect the market to remain fragile in the run-up to Opec’s next scheduled ministerial meeting at the end of next month.

“The speculation has begun and conspiracy theories abound on how Saudi Arabia will react to the collapse in oil prices,” said David Hufton, an analyst at PVM Oil. “We cannot assume that the moves made so far on pricing and comments made in unofficial briefings will turn out to be their final response. Short-term moves to test market and competitive reaction are to be expected.”

Follow The National's Business section on Twitter