Oil risks slump to $40 per barrel

Oil prices could fall below $40 per barrel this year as a supply glut continues to pressure the market.

Longer-term forecasts are also pointing to further downward pressure on prices over the next few years, amid predictions that the US will continue to ramp up production.

Crude has already slumped this year, with Brent oil futures currently hovering around $48 per barrel, down from $57 per barrel in January.

Goldman warning

In a research report published on Tuesday, Goldman Sachs warned that oil prices could “soon” hit $40 per barrel unless global production retreats.

The warning comes as oil already appears to be on the back foot, with hopes of a positive impact on prices from OPEC´s pledges to cut production having been significantly disappointed.

Much of the abundant supply has been blamed on rising crude output in North America, with experts forecasting the trend to continue.

Yesterday, energy consultant firm Pira Energy claimed US oil exports were on course to rise sharply over the next few years, turning the US into one of the world´s largest exporters.

Such predictions cast further doubt over OPEC´s ability to prop up oil prices, with rising output from non-OPEC countries threating to further depress the market´s equilibrium.

Permian Basin

The recent agreement of OPEC members to curtail production alongside non-OPEC member Russia may even have spurred US oil producers to raise production. 

Advances in technology over recent years means that oil shale producers in the West Texas Permian Basin in particular have been able to break even at much lower price levels than in the past.

Against this backdrop, PIRA expects US crude exports to reach 2.25 million barrels per day by 2020, four times the amount exported last year.

While still well below the 7.5m barrels per day exported by Saudia Arabia, the jump would put the US well inside the ranks of the world´s top ten oil exporters.

OPEC production

Along with rising North American production, higher oil output from the likes of Libya and Nigeria has also been weighing on the market over recent months. Although OPEC members, the two countries are exempt from OPEC production cuts.

Despite OPEC broadening its pledge to cut output in May, figures released today showed the trend was continuing, with the cartel pumping more oil in June. OPEC output rose by just under 400,000 barrels over the month, led by production increases in Libya and Nigeria.

At the same time, OPEC´s lead producer Saudia Arabia saw its output slightly increase over the month, exceeding the quota it agreed to last year.