Oil has reached a new low. The end of December saw oil fall to $56 a barrel after Saudi Arabia indicated it would increase its output. This follows an OPEC pact to keep production high in a bid to hurt rival oil producers. This is now below the break-even point for most new U.S. shale-oil production and much lower than the $125-a-barrel oil Venezuela needs to cover its spending, of which 65 percent depends upon oil exports. Russia is hit as well due to the already low ruble and floundering economy. Consumer prices in Russia have risen 9.1 percent in a single year, and the state has become more dependent upon financial support from China.
With Goldman Sachs and Merrill Lynch analysts arguing that oil will drop further, the crash could spell a deflationary disaster for an already struggling Europe. In America, the oil crash will deter investors from shale-oil production and may be a turning point toward new sources of clean energy.
Oil prices are likely to stay low until at least the second half of 2015 after millions of barrels are removed from the market at low prices and a possible slowdown ensues in U.S. shale production as well as at other non-OPEC producers.
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