Oil price extends drop to 7 month lows, despite OPEC cuts

In this Sept. 30, 2015, file photo, oil pumps work in the desert oil fields of Sakhir, Bahrain. (AP / Hasan Jamali)

LONDON -- Oil prices fell further to a new seven-month low on Wednesday, with the international benchmark for crude sliding below US$46 a barrel before recovering somewhat.

That is just above the price seen in November, when OPEC and 10 other oil-producing countries agreed to cut their production to combat a growing supply glut and push the market up.

While Russia, Saudi Arabia and other nations involved in the deal have met their targeted cuts, an unforeseen increase in U.S. supply has countered these efforts. With the glut persisting, the outlook for oil prices has been dampened.

"As we see it, it is not the events that are putting pressure on prices, but above all the shift in sentiment, the previous optimism appearing to have virtually evaporated," analysts at Commerzbank wrote in a note to clients. They predict persistent negative sentiment could push the international benchmark, Brent, below $45 per barrel.

By midafternoon Wednesday in London, it was up 18 cents at $46.20 a barrel after touching a daily low of $45.43.

Weak prices mean that, all other things being equal, consumers can expect cheaper energy and car fuel.

The increased supply has been met with a "disappointing of late" demand for oil within the U.S. A recent report from the International Energy Agency predicted next year's increase in output by non-OPEC countries will be slightly higher than the increase in global demand.

Wednesday's appointment of new Saudi Crown Prince Mohammed bin Salman, a man famous for his combative political and economic policies against fellow OPEC member Iran, has placed the future of the supply-cutting plan under increased uncertainty.

"His aggressive stance against Iran makes it unlikely to see greater Saudi participation in supply cuts without Iran cutting production as well," Petromatrix analysts wrote in its daily market report. Currently, Iran is one of three OPEC countries that have not been asked to cut oil production.

Last week, OPEC countries and a group of other oil-producing nations, led by Russia, agreed to extend the cuts by nine months until next March.