Oil Glut Continues to Affect Crude Prices

Published at 01:00PM - 05/08/16

Oil prices have slumped by 1% in Asia today as a result of an oversupply in crude and refined products.

This has already had an impact on markets and investors, with storage tanks left unsold and China continuing to see a reduction in its oil imports.

In fact, crude prices have probably “bottomed out” at $40 per barrel, former Federal Reserve Chairman Alan Greenspan said at a conference call organised by Rock Creek Group.

Oil Glut Continues to Affect Crude Prices

In the meantime, Thursday saw a rise in US oil prices after an inventory report sent mixed signals about market supply levels.

According to the report, there had been a downfall in gasoline inventories of 3.3 million barrels, which was an unexpectedly large decrease.

However, prices fell again today, putting an end to the two-day rally.

Still, concerns about a persistent glut continue to pressure the market as the US Energy and Information Administration shows that 2.1 million barrels of petroleum products have been added to inventories, totalling 1.4 billion.

Meanwhile, production is also rising across the world, aggravating the concern of a persistent oversupply.

Oil Firms Survive by Taking New Debt

This crash in commodity prices has already had a severe impact on oil majors since it started in 2014.

As tankers continue to trade below $50 per barrel, oil majors are seeing a steep increase in their debt levels, and are concerned that they will have to continue to cut on their capital spending.

According to analysts, this level of debt is actually expected to increase further throughout the year.

Chevron, for example, had to take on new debt over the first half of the year to cover dividends and investment in new projects.

Other majors like Shell, have decided to reduce debt over paying dividends and investing in new projects.

However, the current low interest rates have facilitated borrowing and most oil firms seem to be considering this as a way to survive the crisis.