Crude oil prices tumbled to a new six year low in New York on indications that the supply glut will continue despite the more than 60 percent collapse in wholesale prices over the past year.
The September futures contract for West Texas Intermediate (WTI) dropped 63 cents to close at $41.87 a barrel on the NYMEX today. It was the lowest settlement since March 3, 2009 just months after the financial crisis bottom of $32.40 in December 2008.
U.S. prices have fallen 11 percent this month and 33 percent this year since the 2015 high on May 6th.
Crude oil cost initially dropped this year after opening on January 2nd at $53.76 and eventually reached $42.03 in March before climbing to the May peak. From April 16th until July 2nd, generic WTI averaged $59.00. On July 6th alone the price plunged 6.9 percent as oil broke through the $55.00 support level. Futures have been declining since.
Even though prices have fallen by more than half in a year neither of the marginal major centers of marginal production, the Organization of Petroleum Exporting Countries, primarily Saudi Arabia, or the United States has seen an appreciable drop in production.
Information released on Friday showed that the number of rigs drilling or exploring for oil in the United States rose for the fourth straight week last week. Production in North Dakota, a major shale oil producing state, gained in June from May.
Oil prices have continued to fall even though the United States, the world’s largest user of gasoline, is in the midst of its normally high consumption summer driving season.
Producers in the Middle East, Russia and elsewhere, under pressure from output from American shale oil fields, have uniformly chosen to pursue market share by continuing to pump large amounts of crude oil, rather than restricting supply and attempting to force up prices.
As long as that production race continues, supply, not demand will determine oil prices and it is likely the bottom for crude has not yet been reached.
Chief Market Strategist
WorldWideMarkets Online Trading