The oil price has fallen to a seven year low today as it reached $36.70 a barrel. It comes after prices slumped dramatically – by more than 10% – in just a week.
This is good news for motorists, as petrol prices have dipped to below £1 per litre. Last week Simon Williams of the RAC said petrol pricing below £1 would be “a common sight” in the run-up to Christmas.
(Picture: Sara Macham)
While drivers might be celebrating, falling oil prices are not so good for investors. Today, Royal Dutch Shell has announced it will cut almost 3,000 jobs if it merges, as planned, with BG Group.
The news comes after an initial round of job cuts at Shell in July, when the company said 7,500 positions would go.
(Picture courtesy of Wikimedia Commons)
London’s share price index, the FTSE 100, slipped below the all-important 6,000 level today, with oil firm BP among the largest losers.
Oil and mining companies make up the largest sector in the FTSE 100, and falling oil prices have hit profits – and therefore shareholder dividends – hard.
(Graph courtesy of Wikimedia Commons)
Amrita Sen of Energy Aspects, a research consultancy, says oil prices are not likely to recover until 2017.
“These last few months have been unprecedented. Oil inventories are at record levels, but I think the rebalancing process is underway. In the second half of 2016 we’ll see more, significant, rebalancing, with prices expected to recover from the start of 2017.
“This year has been very strong for demand, but I don’t think that will be replicated next year. The key will be on the supply side; growing production at any cost is no longer the key message from the producers,” she said.