Oil prices got unhinged and hit a new low since April over fears that demand for oil in China may drop off. Thus, on Wednesday because of plummeting stock exchange indexes, China suspended trading of shares in state companies. Earlier many private companies also imposed moratoriums on the trading of their securities.
When oil price fall below USD 60 per barrel, supply resists any further price compression as production growth slows down
The Head of the Department for Strategic Studies in Energy of the Analytical Center Alexander Kurdin explained the situation for the Rossiyskaya Gazeta.
"The oil market depends on expectations and if something happens that affects major consumers such as China, investors get cold feet. However, developments in the stock exchange do not have to adequately reflect the real state of affairs in the economy. At the end of the day, fundamental statistics, industrial output, and GDP growth projects are more important indicators for investors. If it turns out that the falling stock exchange indexes in China are really a result of deteriorating macroeconomic indicators then we will have conditions for further decline in oil prices. We just need to wait and see before drawing conclusions about what is going to happen to the price of oil next,” the expert believes.
China will be publishing macroeconomic statistics next week. Mr. Kurdin notes that the situation in the US has also contributed to the decline in the oil price because the number of drill rigs over there has stopped falling. But in any case, the expert believes that whenever oil falls below 60 dollars a barrel supply resists any further price compression as production growth slows down.