Crude oil closes below $40 US for 1st time since April
Some analysts say oil prices will rise over the next year
Crude oil futures settled below $40 US a barrel Tuesday for the first time since April amid continuing oversupply worries.
The New York futures contract for September delivery settled at $39.51 US a barrel, down 55 cents from Monday's close. The last time oil closed below $40 US was on April 18, when it closed at $39.78 US.
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That price also represents a tumble of more than 20 per cent from its recent peak above $50 US a barrel in June.
The energy sector of the Toronto Stock Exchange slipped 1.7 per cent.
The most recent inventory figures from the U.S. Energy Information Administration (EIA) showed that the U.S. added 1.7 million barrels of crude in the week ending July 22 — pushing the commercial crude oil inventory figure to "historically high levels" for this time of year.
The EIA said the 521.1 million barrels in the U.S. stockpile is more than 61 million barrels higher than it was a year ago and more than 150 million barrels above the supply figure two years ago. The next inventory report from the EIA will come tomorrow.
Pump prices down 16% in past year
While the oil industry isn't happy about the recent slump in the price they get for their products, motorists are reaping the benefits.
A weekly survey of pump prices by the Kent Group says the average price for a litre of regular unleaded gasoline across Canada was $1.008 as of Tuesday, down 1.6 cents from last week. That's a drop of almost 17 per cent from a year ago.
But there are predictions that the current level of oil prices won't last. Bank of America Merrill Lynch head of commodities research told Bloomberg Television that oil will likely be back above $50 a barrel toward the end of this year.
Bloomberg also surveyed 20 analysts for their thoughts on where oil prices would be next year. Their median estimate was that oil would average $57 a barrel in 2017.
Martin Pelletier, portfolio manager at TriVest Wealth Counsel in Calgary, said he expects to see oil prices continuing to drift lower over the coming months. "I definitely think there's more downside than upside with oil prices here."
However, over the longer term, oil below $40 US a barrel is not sustainable from the supply side, he said.
"Prices will have to return to higher levels in order to see increased supply come on the market to meet growth in demand," Pelletier said.