Sub-$40 Oil Coming Again Soon? This Analyst Thinks So

With so many headwinds facing the oil industry, and production and stockpiles sitting near multiyear highs, the outlook for oil prices doesn’t look good.

Although oil has bounced some 35% off its multiyear lows hit back in February, it’s hard to find any bullish narratives for black gold these days. Here’s just a partial list of the major catalysts keeping oil down in the short term:

  • A stronger U.S. dollar, which lowers the value of oil in dollar terms.
  • A halt in Nigerian rebels disrupting the country’s oil output.
  • Rising U.S. crude stockpiles.
  • Iraq’s decree to up its oil exports this month.
  • Weaker-than-expected for the summer driving season (which ends after this weekend).
  • WTI’s failure to recapture the important psychological $50/barrel level.

So with all that said, what are the odds that crude oil drops back below $40 per barrel? One analyst recently pegged the chances at up to 90%:

“While we see high probability of some 80 to 90 percent of a return to $39 WTI, we also feel that achievement of this objective could still be some four to five weeks away,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

Those odds indicate a near certainty that crude will see continued price weakness through at least the fall.

USO-2016-08-31

The United States Oil Fund LP ETF (NYSE:USO) fell $0.09 (-0.84%) to $10.64 per share in premarket trading Wednesday. The largest U.S.-listed ETF tied to the price of WTI crude oil has fallen about 2.5% year-to-date in very volatile trading.

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