Oil prices last night crashed below $60 a barrel for the first time in more than a year amid growing fears of a global economic slowdown.
Brent crude hit its lowest levels since October 2017, dropping 6 per cent to $58.80 in frantic trading across the world, and is headed for its worst month since 2014.
The value of a barrel of oil has fallen by about 20 per cent so far this month and has lost ground for seven straight weeks.
It peaked above $86 a barrel in early October, a four-year high.
The fall is good news for motorists, after supermarkets Asda, Sainsbury’s and Morrisons all passed on the drop by cutting prices at the petrol pumps.
But it also reflects growing concerns about the world economy, and an increasingly heated trade war between the US and China.
Traders also fretted about a slump in the eurozone, after the closely monitored IHS Markit survey showed that business growth had been much weaker than expected this month, slowing to a four-year low.
Activity in Germany – Europe’s largest economy – and France also lagged.
A strong dollar is also weighing on oil prices as there are concerns investors will pull their money out of developing countries and put it in America, damaging growth.
The latest sell-off was partly triggered by a forecast from the Opec cartel of producers saying that the amount of oil supplied into the market will be higher than expected. At the same time, Opec said demand is likely to fall.
The organisation hiked its estimate of non-Opec supply growth by 90,000 barrels per day from its last report, to 2.3m barrels a day in 2018, and up by 120,000 barrels a day next year.
Opec has been trying to stabilise the market since November 2016, but these efforts have also come alongside a surge in production in non-member countries, namely the US, Russia and China, which risk flooding the market and damaging prices.
It was also thought that US sanctions on Iran could stop it exporting to major customers, holding back supply, but most of the country’s key clients have been allowed to maintain their access.
If suppliers produce more oil than is needed, they are forced to cut their costs.
Cailin Birch, global commodities analyst at the Economist Intelligence Unit, said: ‘Oil prices’ recent slide primarily reflects the weakening outlook for global oil demand.
‘The US’s decision to issue waivers for major importers of Iranian oil has erased earlier fears that US sanctions would create a supply crunch. Against that backdrop, the slowing pace of Chinese growth, and therefore energy demand growth, is a concern.
‘Emerging economies in Asia, primarily China, will be responsible for much of the new oil consumption in the coming years, so oil prices will remain very sensitive to the region’s economic performance,’ Birch said.
The weeks-long drop in oil comes after two years of rising prices – which led to a jump in the cost of fuel – has had knock-on effects for airlines and travellers.
Morgan Stanley commodities strategists, Martijn Rats and Amy Sergeant, said in a note to clients that they expect Opec to gain control of the market in 2019, meaning Brent crude would rise back above $70.
Analysts are now waiting to see if Opec will try to cut output when the organisation meets next month.
Trump’s opposition to higher oil prices is particularly important because he has so far refused to take action against Saudi Arabia over the murder of journalist Jamal Khashoggi.
It is thought the Saudis do not want to upset the President at such a sensitive time and are therefore less likely to support production cuts than usual.
Olivier Jakob, of analysis firm Petromatrix, said Trump ‘has provided strong political support to Saudi Arabia, but against that he wants lower prices’.
He added: ‘The President is pushing to keep prices lower for longer, and now he has some political leverage against Saudi Arabia.’