Oil prices hit fresh five-and-a-half-year lows on Wednesday as global business growth slowed to its weakest level in a year and analysts said a building supply glut meant that more falls were likely before a rebound.
The pace of global business growth eased to its weakest rate in over a year at the end of 2014 as rates of expansion slowed in both the manufacturing and service industries, according to JPMorgan’s Global All-Industry Output Index, produced with Markit.
Benchmark Brent crude futures LCOc1 fell to $50.47 a barrel, their lowest level since May 2009, before edging back to $50.60 a barrel by 1. a.m. ET. U.S. futures CLc1 fell to April 2009 lows of $47.27 a barrel before edging back to $47.37.
Oil markets had slumped for a fourth straight session on Tuesday as mounting worries about the supply glut pressured crude prices, which have fallen almost 10 percent this week.
“The risks to oil prices remain skewed to the downside in the near term,” ANZ bank said in a note on Wednesday.
“While we expect high-cost shale producers to be the first to cut production, this is unlikely to occur until the middle of 2015,” it added.
Nobuyuki Nakahara, a former oil executive and ex-member of the Bank of Japan’s policy board, told Reuters he also expected further price falls.
“Oil prices are likely to keep falling due to slower Chinese growth and because the years of prices above $100 before the recent plunge were ‘abnormal’ historically,” he said.
“I would not be surprised if the price falls to as low as around $20… It is purely due to supply and demand. There is a ceiling for oil because high energy prices dampen economic growth,” he added.
The low prices are a result of high output clashing with sluggish demand, especially in Europe, which is still struggling with its debt crisis, and in Asia, where China’s growth is slowing and Japan is battling recession.
On the demand side, output from North American shale producers remains high, although drilling is slowing, and producer club OPEC has so far resisted calls to cut production in support of prices.
Instead, it is trying to defend its market share through offering low prices.