Brent oil falls under $40 for first time since 2009

Brent oil falls under $40 for first time since 2009

Brent oil falls under $40 for first time since 2009

An oil worker shovels at a facility site in the desert oil fields of Sakhir, Bahrain, Monday, Dec. 7, 2015. U.S. stocks are dropping in early trading Monday as investors dump energy companies on lower oil prices. Benchmark U.S. crude is trading near its closing low for the year following a decision by OPEC last week not to cut production.(AP Photo/Hasan Jamali)

Brent crude prices sank under $40 on Dec. 8 for the first time in almost seven years, rocked by OPEC’s recent decision to maintain oil output levels despite a chronic supply glut.

European benchmark oil contract Brent North Sea oil for delivery in January tumbled to $39.81 a barrel - the lowest point since February 2009.

Sentiment was also soured by weak demand growth, the strong dollar and a broader collapse in other commodity markets.

New York’s West Texas Intermediate for January hit a similar low at $36.64 on Dec. 8, having already breached $40 last week.

Crude futures had slumped Dec. 7 after the OPEC oil producing cartel refused on Dec. 4  to slash record high output, in a market dogged by oversupply.

A stubborn supply glut, and weak demand growth fuelled by China’s economic slowdown, have combined to send crude prices slumping more than 60 percent over the past 18 months from levels above $100 a barrel.

Later at around 3 p.m. GMT, Brent trimmed its losses to trade at $40.50, down 23 cents from the Dec. 7 close. WTI stood at $36.93 a barrel, down 72 cents.

U.S. stocks opened sharply lower on Dec. 8, following global equity markets downward as oil prices fell and weak Chinese trade data highlighted global growth concerns.

Five minutes into trade, the Dow Jones Industrial Average was at 17,528.51, down 202.00 points (1.14 percent).

The broad-based S&P 500 fell 22.58 (1.09 percent) to 2,054.49, while the tech-rich Nasdaq Composite Index dropped 55.36 (1.09 percent) to 5,046.45.

“Altogether the trade data make it evident that China’s growth drivers aren’t clicking,” said analyst Patrick O’Hare.

Sentiment is also downcast, O’Hare said.

“The so-called seasonality trade still hasn’t kicked in like many participants have been expecting and that is creating some angst that is fueling some of the selling interest,” he said.

Traders are looking ahead also to a meeting of the U.S. central bank’s Federal Open Market Committee (FOMC) next week, amid expectations that it will announce its first interest rate hike in more than nine years.

An interest rate increase typically boosts the dollar, which would make dollar-priced oil more expensive to holders of weaker currencies.  

Crude stocks in the U.S. have also increased for ten consecutive weeks, adding to the glut of oil around the world. This surplus supply has increased the downward pressure on oil prices, and retained a bearish outlook in the market.

Total oil production in the world exceeds global oil demand by around 2.5 to 3 million barrels per day at the moment.