$20 oil no longer mirage as world confronts price at 12-year low

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The world mostly ignored Ed Morse 11 months ago when the head of commodities research at Citigroup said oil could drop as low as $20.

It’s paying attention now that crude has tipped below $30.

BP Plc slashed 4,000 jobs and Petroliam Nasional Bhd. warned that it faces several tough years as crude futures in the U.S. sank into the $20s for the first time in more than 12 years. Morse, who wrote in a Feb. 9 research note that oil could fall "perhaps as low as the $20 range for a while," said Tuesday in Calgary that the world is now “confronting $20 oil."

“The $20 number is something you have to talk about,” Morse said. “When you’ve seen a $10 price slide and WTI is trading just slightly above $30, the likelihood is fairly great. Clearly oil markets cannot maintain a price at below $30 level for very long. The question is how much longer.”

West Texas Intermediate fell as low as $29.93 a barrel before settling at $30.44 Tuesday, the lowest level since December 2003.

Malaysia stands to lose 300 million ringgit ($68 million) for every $1-a-barrel decline in crude, according to government estimates. ConocoPhillips is losing $1.79 billion in net income each quarter for every $10 drop in prices, according to analysts at Barclays Plc.

The Bloomberg Commodities Index fell to the lowest level since at least 1991 as demand from slowing emerging-market economies fails to keep pace with a flood of supply from investments made during the price boom of a half-decade ago.

(Bloomberg)

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