Citi Treasury and Trade Solutions
12
Tim Waggett
Asia Pacific Energy
Sub Sector Head
Treasury and Trade
Solutions, Citi
Oil Price Drop: How Treasurers Might
Navigate Current Volatility
Falling oil prices in the past 10 months might be good news to companies that stand to gain
from lower production costs. However, the sharp decline has unnerved boards and treasurers
following years when prices were much higher. With oil prices likely to remain subdued for some
time, there is a compelling case for prudent treasury strategies and robust working capital
management to help treasurers navigate the current volatility.
Since June 2014, the price of benchmark Brent
crude oil has fallen to around USD50 per barrel
(bbl), touching the lowest point in more than
five years and about 58% lower than its
year-to-date peak of USD115/bbl in mid-2014.
A number of factors have caused the oil price to
plummet, which include:
• Strong growth in US production, which
has pushed imported crude back onto the
international market
• Resumption of significant Libyan oil
production (from 200,000 barrels of oil per
day (kbopd) in June to 900kbopd by the end
of September)
• Weaker than expected global demand,
particularly in Europe and Asia with China
production rising at its slowest pace since
2008; the IMF reducing global economic
growth forecast for 2015 from 4% to 3.8%;
the OECD reducing its expectations for
economic growth through 2015; and noting
an increasing likelihood for the eurozone to
re-enter recession
This downturn has been exacerbated by Saudi
Arabia and other Gulf countries being unwilling
to cut production. Instead, they have preferred
to defend their market share through an
aggressive “price war”.
