Oil drops below $40 per barrel; where is the bottom?

Photo courtesy: The Daily Advertiser

The downward spiral for oil prices finally flipped the $40 a barrel mark Friday, as oil sold for $39.86 a barrel.

“Your concern now is that now people are worried about where the bottom is,” said Dr. Loren C. Scott, former LSU economist. “If it stays there a few weeks, you’ll see more announcements about layoffs.”

The Associated Press reported Friday morning that oil prices have been falling for eight consecutive weeks, the longest streak in 29 years. Prices have fallen from a high or more than $100 a barrel last summer, almost 60 percent in the last year, 34 percent in the last three months.

Scott said at least part of the problem rests in the “superabundance” of supply, with more oil in storage than at any time in the last 80 years.

“There’s a huge glut,” he said. “As we get further into fall, will start seeing impacts in slowdown in production in the U.S.”

Scott said the problems with the flooded oil market is that problems are continuing all around the world. Even the Saudis, who exacerbated the flooded market problem last November by vowing to pump unabated, despite the downward shift in returns, need oil to remain at a stable price in order to make a profit and continuing to produce oil.

“When prices fall like this, the next thing that falls is gasoline prices,” Scott said. Consumers will save at the pump and can afford to buy more things.

But Scott said some pressures may come to bear that will force oil prices up. He said U.S. production may back up because of the glut and diminishing returns for oil companies.

Scott said demand for winter heating may tap some of the excess oil in storage. By November, perhaps, and by February and March, most likely, the market will see some “supply side effects” including higher oil prices.

Friday’s downward price turn may be linked to a softer economy in China, where manufacturing had been consuming a lot of the excess oil.and continued slow economies elsewhere: Japan, Europe and Russia and more..

Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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