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Reuters/Alexei Druzhinin/
Smiling on the outside.
CRUDE AWAKENING

Oil prices have now crashed through their 2008 low, and worse is likely to come

By Steve LeVine

Brent crude, the international oil benchmark, lost its bottom today, plunging below its 2008 nadir and threatening new fiscal pressure on OPEC and Russia. Global stock markets rose, shaking off whatever concerns caused them to plummet last week in the face of oil price declines. But Brent’s fall through the low of the financial crash is a psychological blow, with the likelihood of worse to come if you happen to be a crude exporter.

The price fell to as low as $36.05 a barrel today (Dec. 21), 15 cents below its $36.20 bottom in December 2008. Brent bounced off the low in European trading—it is at $36.81 as of this writing, down 56 cents (1.5%) from Dec. 18. But having breached the symbolic threshold, traders are likely to bid Brent down again.

Last week, Goldman Sachs and Citigroup both reiterated prior calls that $20-a-barrel oil is possible in 2016, when Iran will start to export an added hundreds of thousands of barrels of oil, adding to a heaving global surplus. On top of that, the US on Dec. 18 completely lifted a ban on US oil exports; although little or no rise in oil exports is likely from the US any time soon, the very fact of it looming on the market will be an additional weight on prices.

The leading exporters—Russia and Saudi Arabia—have put on brave faces in the now-18-month-long plunge of oil prices from a three-year perch above $100 a barrel. They have argued that their enormous cash reserves will allow them to weather any price for as long as it takes to finally force upstart US shale drillers to turn off their spigots.

US production has dropped from its high of 9.6 million barrels a day in April; in September, it was down to 9.4 million barrels, and is expected to average 8.8 million barrels a day next year. But it remains up by about 4 million barrels a day since 2011.

And on Dec. 18, the number of US rigs drilling new shale wells rose sharply, by 17, after four weeks of declines, suggesting that Russia and OPEC will have to suffer longer.