Oil price dips below $50 a barrel

Oil prices slumped below $50 a barrel, close to their lowest level in seven months, after figures pointed to rising US crude production which threatens to exacerbate a worsening global supply glut.

The price of a barrel of Brent crude, the benchmark North Sea contract, dropped to $48.88, amid mounting expectations that prices may soon test six-year lows of $45.19 set in January, which was the lowest since March 2009.

The latest slide followed the publication of figures from the US Department of Energy showing that US oil production during the week ending July 31 rose by 52,000 barrels a day to 9.5 million.

The increase offered fresh evidence that a Saudi-led push to drive US shale gas producers out of business by turning on the spigots to drive down prices was not yet working.

Fereidun Fesharaki, owner of FGE Energy Consultants, said the glut was likely to widen further later this year when international sanctions against Iran are lifted.

Dr Fesharaki said an Iranian promise to lift production by 500,000 barrels a day within one week of sanctions being removed, probably in November or December, was “totally do-able”. “It can happen very quickly,” he said, adding that Iran had already found buyers for its crude in Greece, Italy, Korea, Turkey and Japan.

Output from the Opec cartel of 12 producer nations is already running at record levels of 31.5 million barrels a day. Deutsche Bank said the fall in the oil price reflected “persistent concerns around the eventual return of Iranian supply and the outlook for the Chinese economy”, which is the largest importer of crude oil in the world.

The International Energy Agency has predicted that the global oil market will be oversupplied by about 1.8 million barrels a day this year.

The latest price fall came as Apache, one of America’s biggest oil producers, reported a nearly $6 billion quarterly loss — offering fresh evidence of the pain that low oil prices are inflicting on the US oil industry. The Houston-based company posted a loss of $5.6 billion, compared with a profit of $505 million during the same period a year ago. It had already announced plans to slash spending by 60 per cent this year to cope with the downturn.

US oil producers are now cutting an estimated 15,000 jobs a month, according to Moody’s, although without any discernible impact on output.