The price of crude oil has plunged to levels not seen since mid 2005. An unusually warm winter so far in the United States has reduced demand for heating fuel by about a third there with the result that storage tanks are full. In addition, some of the speculative investors who were putting large sums into the markets are now betting that prices will fall further.
OPEC is getting concerned and Kuwait’s oil minister has warned that oil producers may cancel plans to expand production if prices continue to fall. OPEC is cutting its output, from the 26.9 million barrels per day it was officially pumping last month.
At one stage on Tuesday, the price of Brent crude was 30% down from a record of more than 77 dollars a barrel in mid July. One problem for OPEC is getting its members to follow through on the production cuts they have committed to. The group, which produces around 40% of the world’s oil, agreed last month to cut 500,000 barrels per day from the start of February; that is on top of what was supposed to be a 1.2 million barrel per day reduction from last November. But traders say the market doubts the planned production cuts will be fully implemented.