Brent crude drops to six month low

Opec’s Iranian president could call emergency meeting to halt price drop

European benchmark Brent crude oil prices dropped to a six-month low on 9 August, falling to $99 a barrels, having shed $10 in the space of as many days, since the downgrade of the US’ credit rating spread fears of a global economic slowdown in early August.

Brent crude prices were as low as $98.74 a barrel, the lowest intraday price since February, having hit a peak of $127 a barrel in April.The Dow Jones index dropped 5 per cent in the first trading session since the historic downgrade of the United States’ AAA credit rating by Standard & Poor’s ratings agency.

The drop has made life uncomfortable for some members of the oil producers’ group, Opec. Although the next meeting in Vienna is not scheduled until December, Iran’s representative, Mohammad Ali Khatibi told the Oil Ministry news agency, Shana that the 12-members would meet again if prices continued to fall. The Opec basket is down to $102.37 a barrel.

For many, the question is whether this is a repeat of the 2008/9 cycle, which saw prices rise to $147 a barrel and then drop to below $40. Despite noting that West Texas Intermediate (WTI) prices could drop as low as $50 a barrel under a recession scenario, US investment bank Merrill Lynch stuck to its $102 a barrel forecast for 2012, in its latest research note.

The UK’s Barclays is also doing its best to talk up the market, describing the supply side as poorly performing against three years ago; Libya for example remains out of the market and its cumulative losses are now close to 250 million barrels.

Unrest in the Middle East and North Africa MENA has also left governments with higher breakeven price requirements to balance their vastly higher spending programmes in most of the GCC countries.“Thus, the threshold for active producer involvement in the market is some $20 to $25 higher, lending support to an oil price at around $90 to $100 per barrel”, says Barclays analysts.