Brent crude, the global benchmark for oil prices, fell more than 5 percent on the London ICE Futures Exchange to close at $56.93. Capital Economics lowered its year-end price forecast by more than 8 percent, which puts US oil at $50 a barrel and Brent – at $55.
The fall in oil prices is explained by a combination of factors, such as uncertainty in the eurozone after the vote in Greece, expectations of rising US oil production, the looming closure of the Iran nuclear deal and decreasing demand for exported oil in China.
“Even though Greece is a particularly small consumer of oil (about 0.3 percent of the world’s total last year), it is the risk of contagion and in a worse case, another recession in the eurozone, which has weighed on oil prices,” Thomas Pugh, commodities economist at Capital Economics, said.
61.31 percent of the Greek population backed the ‘No’ vote in the referendum on whether to accept further austerity measures in return for international financial aid on Sunday.z
Last week, US oil drilling went up after 29 consecutive weeks of declines, with the number of rigs increasing by 12 to 640. The possibility of Iran and the world powers reaching a deal on Tehran’s controversial nuclear program by Tuesday’s deadline also raises fears of oversupply.
The agreement is likely to see sanctions lifted against Tehran, with the Wall Street Journal reporting that the Iranian authorities are planning to double oil exports to 2.3 million barrels a day if it happens.
There are also doubts about China – the world’s second largest consumer of oil – being able to maintain its demand after the country’s markets plunged in recent weeks. Chinese authorities are making active efforts to deal with the situation, but if they fail, investors fear the economic growth in China will slow down, leading to a decrease in oil imports.