The world’s cheapest oil is already priced close to $20 per barrel. Producers in western Canada are now selling oil for  less than $22 per barrel while a mix of Mexican crude is valued at less than $28 a barrel, according to Bloomberg.

Crude Oil Andy Hall

Some producers already accepted the reality that oil prices would decline further as the price of crude crashes through $35 in New York. Oil prices declined to levels, which were last seen during the 2009 global financial crisis amid the global supply glut.

Aaron Clark, the energy markets editor at Bloomberg News, said, Oil is getting pummeled because of several factors. The main driver was the December 4 OPEC meeting, where members abandoned their output quota. Clark noted that every OPEC nation will maximize output to drive out of the market higher cost producers particularly U.S. shale producers.

Global oil production is not economical at current prices

In an e-mail to Bloomberg, Ehsan Ul-Haq, senior consultant at KBC Advanced Technologies Plc, said, “More than one-third of the global oil production is not economical at these prices. Canadian oil producers could have difficulty in covering their operational costs.”

Data compiled by Bloomberg showed that the price of a blend of Mexican crude dropped 73% over the past 18 months to $27.74 per barrel on December 11, the lowest level since 2004. Venezuela’s oil prices are also experiencing a similar decline.

Western Canada Select, which is heavy and sulfurous, suffered a 75% decline to $21.37 per barrel, the lowest level in almost eight years. Other varieties including Ecuador’s Oriente, Saudi Arabia’s Arab Heavy and Iraq’s Basrah Heavy were selling below $30.

Meanwhile, Bitumen, which is technically not considered crude, is trading at around $13 per barrel, down by more than 80% since June last year. Bitumen is black and heavy viscous oil composed of tar sands, clay, sand, and water.

“Crudes of this type, trade at a discount to lighter varieties because to process them “refiners have to invest in upgrading facilities such as coking plants, which are very expensive,” said Ul-Haq.

Many producers cannot continue with the current situation

On the other hand, Torbjoern Kjus, an analyst at DNB ASA in Oslo, commented, “Most places in the world, a lot of the producers they don’t really get the Brent price, and they don’t get the WTI price.” He added that many producers cannot for a long time given the current dramatic situation.

The OPEC supplies approximately 40% of crude worldwide. Market observers noted that oil price from OPEC were trading below the Brent and WTI benchmarks. The price of 12 crudes produced by OPEC stood at $33.76 per barrel on Monday, the lowest in seven years.

Abhishek Deshpande, an analyst at Natixis SA, said, “A lot of the producers might want to sell as much at current prices,” rather than a level that could be even lower in coming weeks.”

Christophe Salmon, chief financial officer atTrafigura Pte Ltd., the world’s third-biggest independent oil trader, believed that the price of oil will decline further. He said, “I don’t think we have reached the bottom of the cycle yet.”