Just hours after Royal Dutch Shell reported higher earnings thanks to stabilising oil prices, the West Texas Intermediate index came crashing down, ending Thursday at $45.52 per barrel, hitting its lowest level in five months.
The price of Brent crude experienced a similar slump toward the end of the week, falling from $50.79 per barrel on Wednesday to $48.41 per barrel on Friday morning.
The “brutal slide in oil prices” appears to have resulted from overly optimistic expectations around rebalancing demand and supply, Tilney Group’s managing director Jason Hollands said.
For months commentators have been debating the potential impact of a sharp increase in US shale production on global prices, with some remaining adamant that the worst risks would not be realised.
Hollands also attributes the sudden commodities downturn to softening Chinese economic data.
“While over the last several months there has been a lot of attention on the potential impact of the Trump administration helping to reflate the global economy with an aggressive cocktail of tax cuts, infrastructure investment and deregulation, China seems to have been overlooked by some as a counterweight,” he said.
“The effect of China’s last round of credit driven stimulus is fading and that is starting to weigh on both China’s rate of economic growth but in turn commodity prices.”
If weakness in oil and commodity prices persists, Hollands said this could be a headwind for the FTSE 100 and its overseas earners, including BP and Shell, and a potential tailwind for sterling, on the flip side.
