On Monday, 5 January 2015, global financial markets were shaken by news that West Texas Intermediate Oil dropped below $50 per barrel. The energy sector has been rocked by price instability in the oil markets, with OPEC members standing firmly by their decision to allow market forces to determine price equilibrium. The price of oil has plunged more than 50% since June 2014, and downward pressure on the price looks set to continue well into 2015. The accelerating decline in oil prices has many commodities brokers and fund managers concerned, since falling revenues for petrochemical companies translate into future job losses, closures and ultimately rising oil prices. The flipside of the low oil price dilemma is that it may be reflective of decreased economic activity owing to lower overall production levels. Deflation is always hovering in the background, and steadily falling prices are of grave concern to policymakers.
The news has not been helped by reports of increased oil production out of the Middle East and high levels of US oil production. OPEC countries continue to flood the market with cheap oil in the hopes of flushing out the competition in the US. American oil companies announced plans to scale back their operations in Q4 of 2014, yet they continue to produce oil well beyond the existing demand level. Both WTI crude oil and Brent crude oil dropped below their key support levels in $50 per barrel and $55 per barrel respectively. Banc De Binary trading analysts have been seeing large numbers of put options on commodities in the energy sector. This bearish outlook will continue as long as an oversupply of oil pervades the global markets.
