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[LONDON] The price of crude sold by Opec members slid below US$30 a barrel, the lowest level in almost 12 years, as turmoil in Chinese markets deepened the global commodities rout.
The daily basket price of crudes produced by the 13 members of the Organization of Petroleum Exporting Countries fell to US$29.71 a barrel on Wednesday, down from US$31.21 the previous day, the group said in an e-mailed statement. That's the lowest level since February 2004, according to data compiled by Bloomberg.
Oil has slumped further this week as a selloff in Chinese markets added to concerns about the strength of the nation's economy. WTI crude, the US benchmark, has had its worst-ever start to the year, deepening the economic pain for Opec's weaker members such as Venezuela.
"If you look at all the benchmarks, they're all at very low levels," Olivier Jakob, managing director of Petromatrix GmbH, said by phone. The turmoil in China is "putting a lot of pressure on all assets," he said.
Saudi Arabia - Opec's biggest producer - has led the group for just over a year in a strategy to defend its market share and let prices fall in a bid to push higher-cost rivals such as US shale oil explorers out of the market. The policy has proven costly and slow to bear fruits. While US output has fallen 4.1 per cent from its June peak of 9.6 million barrels a day, Opec members lost about US$500 billion in revenue last year, according to the International Energy Agency.
Opec, which supplies around 40 per cent of the world's oil, left its strategy unchanged at its December meeting in Vienna, effectively abandoning any limits on its production.
"I don't really see them changing for now," Mr Jakob said, referring to Opec's leading member Saudi Arabia. "What we need to wait for now is for an Opec country to collapse. That is still a risk factor, but it's not necessary an overnight risk factor."
While Saudi Arabia's budget has room to withstand a long period of low oil prices thanks to its US$627 billion in net foreign assets, Venezuela is facing the deepest recession in its history because oil accounts for 95 per cent of its exports. The International Monetary Fund estimates Venezuela's gross domestic product contracted 10 per cent last year.
Saudi Arabia might admit defeat and consider reversing its strategy if low prices haven't led to significant cuts to non- Opec supply by 2018, Nitesh Shah, a commodities strategist at ETF Securities, said in a note.