Oil prices halt three-day rally, drop to $49.20 per barrel

. OPEC plans more cancellation of future investments 

Crude oil prices dropped by nine per cent from $53.80 to $49.20 per barrel yesterday, following concerns about a slowdown in Chinese economic growth.

The commodity saw its biggest three-day surge in 25 years three days ago after plummeting below $38 a barrel for the first time since 2009.

Brent crude for October delivery fell by $2.13, or 3.9 per cent, to $52.02 a barrel after climbing $4.10, or 8.2 per cent, in the previous session.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in October traded at $48.35 a barrel, down by 1.73 per cent while October Brent crude on London’s ICE Futures exchange fell by 1.9 per cent to $53.12 a barrel.

To cushion the effect on crude oil prices, the Organization of Petroleum Exporting Countries (OPEC) said on Monday the cooperation will remain the key to oil’s future and therefore called for dialogue among the main stakeholders.

Besides the obvious loss of much-needed revenue required for Member Countries’ socio-economic development, OPEC feared that investment in future capacity additions will continue to be shelved or cancelled altogether under the current low-price scenario.

The oil cartel said in its bulletin commentary believed that there is no quick fix to the present crude oil challenges, “but if there is a willingness to face the oil industry’s challenges together, then the prospects for the future have to be a lot better than what everyone involved in the industry has been experiencing over the past nine months or so.

Only time will tell”, it added. In its monthly OPEC Bulletin released on Monday, Secretary General of OPEC, Salem El-Badri, said extreme price fluctuations are clearly not conducive to the effective functioning of the market, particularly given the long-term nature of investments in the industry. A

ccording to him, alongside the current oil market situation, the challenges for the industry include challenges that “we can call ‘known” uncertainties.

He listed the challenges to include the role of financial markets and oil market speculation; manpower bottlenecks; the energy-water nexus; energy policies in some consuming countries; and, the potential impact of UN climate change negotiations. “And there are also ‘unknown’ uncertainties.

These are most often related to geopolitics and severe weather patterns. At the end of the previous decade and in the early years of this one, the impact of the increased financialisation of oil markets was much discussed as some price movements were clearly not been driven by fundamentals or the normal ebbs and flows of the market. “They were being driven by market speculation.

There is also no doubt that speculation played a role in the oil price dropping by over 60 per cent between June 2014 and January 2015.

The actual supply and demand fundamentals of the market did not warrant such a fall. It is extremely important to keep a watchful eye over speculative activities. “It is clear we cannot avoid speculation and volatility altogether.

But extreme price fluctuations are clearly not conducive to the effective functioning of the market, particularly given the long-term nature of investments in our industry”, El-Badri said.

He added: “The goal, for both producers and consumers, must be a stable price. It is a price that helps to deliver the necessary investments — and here we need to remember the cost of the marginal barrel — that allows producers to receive a reasonable income, and that enables the global economy to grow.

There is the human resource challenge. “With strong competition from other economic sectors for skilled workers, there is a need to address the oil industry’s difficulties in finding and hiring labour at the global level.

The industry needs to make sure it is attractive to prospective graduates, retains talented people and transfers knowledge to the next generation. They will be the ones that push the industry’s boundaries in the years ahead”.