U.S. Crude Falls Below $40

U.S. crude oil prices have fallen below $40 per barrel for the first time since 2009. And industry experts don’t believe prices have bottomed.  

A rise in U.S. drilling and a drop in Chinese manufacturing are the primary catalysts for the plummeting prices. U.S. energy firms added two drilling rigs this week, which is the fifth consecutive increase. Many in the industry are concerned the global surplus will only grow as U.S. shale production appears slow to respond to falling prices.

The glut in oil supply is even outpacing high demand. The International Energy Agency recently raised its oil demand forecast by 1.6 million barrels per day, which is the most since 2010. On August 19, the Energy Information Agency (EIA) said the U.S. oil inventory rose 2.6 million barrels to 456.2 million barrels in the last week.
Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) has a production quota of 30 million barrels per day recently stated that it pumped an average of 31.5 million barrels per day in July. 

The energy industry is feeling the effects of the dropping crude prices.  In June, the EIA said the US petroleum industry lost about 6.5% of its jobs from October to April, which is about 35,000 of its 538,000 workers. Shell and Centrica announced recently that it would eliminate 6,500 and 6,000 jobs respectively. 

And the looming Iran nuclear deal could further flood the market. If passed, the Iranians could export as much as one million barrels per day.  

Earlier this year, investors and forecasters predicted that prices would recover by the second half of 2015. Forecasters expect crude prices to remain below $60 per barrel throughout 2016 and don’t anticipate a rebound until 2017.