Can Oil Prices Drop to $40 a Barrel? Some Say It’s Possible

NBC News

Remember way back in June, when oil was $115 a barrel? Now it’s trading at around $67.90 a barrel for Brent crude and some analysts are predicting, given the right conditions, it could tumble to as low as $40 a barrel.

Weak demand, a strong U.S. dollar and booming U.S. oil production are the three main reasons behind the fall, according to the International Energy Agency (IEA), which warned of a “new chapter” for oil markets, which could even affect the social stability of some countries. Russia is already feeling some pain: the ruble tumbled about 4 percent on Monday, on course for its biggest daily drop since the 1998 financial crisis.

Saudi Arabia sparked talk of an oil price war as it has cut its official selling prices for some customers for four consecutive months through November. Part of oil’s drop has to do with supply conditions. Increased U.S. oil production has added to a glut in the world oil market. The U.S. now produces about 8.9 million barrels a day, while Saudi Arabia, the world’s largest producer, pumps about 9.6 million barrels a day.

As oil prices drop to more than four-year lows, analysts are slashing their forecasts, with some predicting it could plunge as much as 40 percent to around $40 a barrel. “There is a possibility that if this price war becomes unmanageable, [we could] see prices down to about $40 a barrel [for WTI],” Jonathan Barratt, chief investment officer of Ayers Alliance Securities, told CNBC.

But for oil to get all the way down to $40 a barrel would take “a massive lack of confidence in the economies, also a lack of pricing power,” Barratt said.

  1. #1 by Justice Ipsofacto on Wednesday, 3 December 2014 - 10:24 am

    Alright. For a country like malaysia where the economy has been high on petroleum addiction for years, now – in a sudden sweep – faces the real need to follow in the footsteps of hollywood stars and check into a substance abuse rehab centre to rid the country of the addiction.

    That is going to be painful. And it takes a great deal of determination – something umno lacks.

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