Landsliding oil prices dropped to new lows Tuesday, hitting their lowest mark in nearly six years.
With prices dropping Tuesday morning to as low as $42 and change, the downward trend that started last year has territory uncharted since March 2009, when the West Texas Intermediate (WTI) future prices bottomed out at $42.51. The market overcame that 2009 drop, but industry experts are split on whether the current situation will have to get worse before it gets better.
WTI crude oil futures have since inched up a bit from this morning’s drop and are currently hovering at $43.11, while Brent crude price futures are also staying put for now, coming in at $53.49 as of Tuesday afternoon.
A report released over the weekend by the Institute of International Finance shows that despite benefiting from a surplus surge in recent years, the last 12 months for Brent crude prices has resulted in a decline of 50 percent. For WTI prices, the drop is about 60 percent from where it was at in June 2014.
According to the most recent industry data released by the federal government last week, over 500 oil rigs operating in the U.S. have also fallen victim to crude’s price drop, decreasing from 866 down to 56, with drilling giant Baker Hughes reporting that 709 of its rigs (about 45 percent of its force) have been made inactive in just the last three months alone.
So in the grand scheme of things, what does this all mean?
According to one industry analyst who spoke with CNBC, the price will keep going down, with Brent prices getting as low as the high $40s and WTI prices dropping under $40 in the coming months. But there still may be a happy ending to this story, according to industry analyst Amrita Sen. Here's Sen speaking with CNBC:
“It’s (trading) positioning and the U.S. dollar that is accentuating the downtrend, for sure,” the London-based analyst told CNBC Tuesday. “This is seasonality as well, we forget, its March, April. This is exactly when oil falls every single year. Sure, we usually come off from $110 down to $90, but this is the time when refineries go into maintenance.”
Yet, some analysts argue the price will get even lower than Sen's predictions, perhaps as low as $20 a barrel. Here’s that argument as reported by CNBC:
A strengthening dollar and economic weakness in Europe and China could drive crude prices as low as $20 per barrel, according to Raoul Pal of The Global Macro Investor newsletter.
The dollar has been climbing recently against the euro and the yen, pushing oil prices lower and sending fear across the markets. He said crude could still fall another 60 percent before the downturn is done.
Pal said the strengthening dollar is a big part of why oil could continue to drop. “If we look back historically at how these big dollar bull markets go, I think it’s going to go, using the (dollar index), at least to 125, maybe even further,” he said in an interview Tuesday on CNBC’s “Fast Money.”
Historically the price of oil moves inversely to the strength of the dollar.
According to Pal, that relationship, along with weak demand in Europe and China, has led oil companies to put crude into storage in hopes of waiting out the downturn in prices. Crude stores in America are filling “at an incredible rate” and could be full by summer, he said, which could lead to even more dire consequences.
Go here and here to read more from our coverage on this issue and the impact it’s had so far on the oil and gas industry here in Acadiana.