Oil Below $39 as Glut Continues

Futures for a barrel of West Texas Intermediary crude fell below $39 a barrel early Monday — a level not seen since 2009. Oil closed at $40.29 on Friday.

It was just June of 2014 that oil was at $100 a barrel.

The current slide is an acceleration of the meltdown in energy prices that began last fall and could bring the gas for less than $2 a gallon to most of the country later this fall.

The latest crash in oil prices is another sign that the world still has more oil than it knows what to do with at a time when uncertainty on global growth reigns supreme.Oil is staring at a massive supply glut that’s been led by the surge in production from American shale oil producers.

To the surprise of some, U.S. oil companies have kept pumping rapidly this year despite depressed prices. That’s in part because newer technologies and cheaper expenses have made it profitable to produce even at lower prices.

Normally, when prices fall, OPEC steps in and cuts production. But not this time. The cartel, led by Saudi Arabia, has refused to dial back and continues to pump out a record amount of oil.

Some see that as part of a strategy to pressure American shale oil producers and drive them out of business. It is also a way to flex its muscle at a time when its grip on the global oil market has faded. OPEC used to make up about 60% of the global oil market. Today that number has shrunk to 40%, largely because of surging U.S. production.

via CNN

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza