U.S. crude futures dropped three percent Thursday, driving prices below $27 for the second time in recent weeks. Before this year, oil prices hadn’t dipped below $27 since 2003.
The steady decline is creating a widespread headache for financial markets. It’s causing energy companies’ profits to plunge, raising worries about the prospect of bankruptcies in the oil sector and spooking investors about global growth. In total, crude oil has plunged an incredible 75 percent from its June 2014 peak of almost $108.
The Hang Seng (HSI) dropped nearly four percent Thursday, while the Nikkei (N225) shed 2.3 percent. Major indexes in Europe opened roughly two percent lower. And U.S. stock futures are down nearly two percent.
The International Energy Agency said earlier this week that it expects the global oil glut to grow throughout the year.
“With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” the IEA said in its monthly report.
Freed from sanctions, Iran ramped up its production to nearly three million barrels a day in January — an 80,000 increase from December.
Iraqi output reached a record high of 4.35 million barrels a day in January, and shipments from Saudi Arabia have also increased.
Many have been hoping that low oil prices would boost oil demand. But the IEA, which monitors energy market trends for the world’s richest nations, is predicting a slowdown because of global economic headwinds.
Fed Chair Janet Yellen acknowledged Wednesday that the global economy is facing challenges, but reiterated the U.S. central bank’s plan to gradually raise interest rates.
Japan’s central bank recently introduced negative interest rates in a bid to produce growth. China’s central bank has spent hundreds of billions to prop up its currency and the European Central Bank could soon increase its stimulus program.
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