The market for crude-oil has been slammed in the past month. CNBC reports that shares could trade down to the low $30 area, and could go as low as the mid-$20s.
Crude-oil is experiencing what is known as a “classic bear-market syndrome.” This means that good news gets ignored and bearish market elements will rise.
The oil price was at its lowest in the last decade, according to Financial Post. Emerging markets were in turmoil as the cash reserves were being depleted, sending Saudi Arabia into a panic.
Economists are forecasting a budget deficit of 20 percent of gross domestic product, and the International Monetary Fund is predicting the first Saudi current-account deficit in more than a decade. Reserves have fallen by more than $70 billion (US currency), which is ten percent lower than a year ago.
“The Saudi government can’t continue to be the employer of first resort, it can’t continue to drive economic growth through big infrastructure projects,” said Farouk Soussa, chief Middle East economist for Citigroup Inc. in London.
The Saudi government can’t continue to be the employer of first resort, it can’t continue to drive economic growth through the big infrastructure projects and it can’t keep lavishing on subsidies and social spending.
The tide could turn, however. If U.S. oil output continues to fall, Saudi Arabia might be induced to reduce their production levels, which could trigger a price rebound.
David Butter, associate fellow at Chatham House in London doesn’t feel there is a need for panic. “I wouldn’t say there’s any kind of crisis or even a crisis on the near horizon,” he said.
I wouldn’t say there’s any kind of crisis or even a crisis on the near horizon. They’re in the oil business. They’ve had it pretty good for quite a long time and that’s not typical.
The fall in oil prices comes just months after the death of King Abdullah in January when the prices were on the rise.