Oil price falls again and 'could hit $10 a barrel'

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At about $50 a barrel, crude oil prices are down by more than half from their June 2014 crest of $107. They may fall all the more, maybe even as low as $10 to $20. Here's the reason.

U.S. economic growth has arrived at the midpoint of 2.3 percent a year since the recuperation began in mid-2009. That is about a large portion of the rate you may expect in a bounce back from the deepest subsidence since the 1930s. In the interim, development in China is moderating, is negligible in the euro zone and is negative in Japan. Toss in the expansive increment in U.S. vehicle gas mileage and other conservation measures and its acceptable why worldwide oil interest is feeble and may even decay.

A. Gary Shilling argues that a combination of factors will push the oil price down again.

The first is the diminishing power of the Opec cartel. In Shilling's view, Saudi Arabia has experienced market-share losses in the past, due to the "cheating" of fellow cartel members, who have exceeded their agreed output quotes.

Consequently, Saudi Arabia has embarked on a "game of chicken" with the cheaters, believing that it can withstand low prices for longer than its financially weaker competitors. The latest figures suggest that Saudi oil production has now increased to 10m barrels per day, and data out later today is expected to show that US oil output is also on the increase.

"According to the American Petroleum Institute, US crude stocks rose by 14.3m barrels last week, far more than analysts had expected, The Guardian reports. "Markets are waiting for official figures from the US Energy Information Administration, out at 16.00 GMT. If they confirm the large build-up in inventories, it would be the biggest weekly increase since data started in 1982.

Some analysts had predicted that the falling oil price would act as a brake on production, especially in the US, where extraction costs are higher. What is the cost at which significant makers back down and cut output? Whatever that cost is, it is much lower than the $125 a barrel Venezuela needs to backing its blundered economy. The same strives for Ecuador, Algeria, Nigeria, Iraq, Iran and Angola. Saudi Arabia obliges a cost of more than $90 to reserve its financial plan. At the same time it has $726 billion in remote cash saves and is wagering it can make due at two years with costs of not exactly $40 a barrel.

Besides, the cost when makers back down isn't fundamentally the normal expense of creation, which for 80 percent of new U.S. shale oil generation not long from now will be $50 to $69 a barrel, as per Daniel Yergin of energy consultant IHS Cambridge Energy Research Associates. Rather, the back down point is the minor expense of creation, or the extra expenses after the wells are bored and the channels are laid. An alternate approach to consider it: It's the cost at which income for an extra barrel tumbles to zero.

According to research by the energy research organisation Wood Mackenzie, only 1.6 percent of the 2,222 oil fields they surveyed around the world are likely to have negative cash flow at $40 a barrel. Consequently, Shilling says that the marginal cost for both US shale-oil producers and oil producers in the Persian Gulf "is about $10 to $20 a barrel".

Finally, as supply continues to rise, Shilling notes that global demand is receding. The International Energy Agency has been slashing its forecasts for global oil demand growth for months, the International Business Times reports. The agency's 2015 global demand forecast now sits at 93.3 million barrels a day, while supply is likely to exceed this demand by 400,000 barrels a day. 

A top oil analyst has warned that oil prices are likely to fall further this year before they recover, with West Texas Intermediate crude possibly falling below $40 a barrel in the second quarter of the year. Tom Kloza, chief oil analyst at Oil Price Information Service, told CNBC that the "cycle has a long way to run out", adding that the spread between Brent and WTI could widen to about $10.

Despite the fact that the 40 percent decrease in U.S. fuel prices since April 2014 has driven buyers to purchase more gas-guzzling SUVs and pick-up trucks, purchasers amid the recent years have purchased the most productive mix of autos and trucks ever. In the meantime, moderating development in China and the shift far from vitality escalated made fares and base to buyer administrations is discouraging oil request. China represented 66% of the development popular for oil in the previous decade.