Oil briefly slips below $40 for first time since 2009

Oil plunged below $40 a barrel in New York for the first time in more than six years, extending the longest decline since 1986 on concern that slower demand growth will prolong a global glut.

Prices have tumbled almost 35 percent since this year’s highest close, in June, as producers pump away even after an oversupply pushed prices into a bear market. West Texas Intermediate may drop to $32 on the persisting surplus, Citigroup Inc. said Wednesday. Meanwhile, concern that China’s economy will slow increases expectation that demand will wane.

“It’s clear that the major producers, the Saudis, Russians, the United States and others, are battling for market share,” John Kilduff, a partner at Again Capital Llc., a New York-based hedge fund, said by phone.

An unexpected crude inventory gain in the U.S. last week followed signs that OPEC members plan to boost production. A manufacturing gauge in China, the world’s second-largest oil consumer, sank to the lowest level since the financial crisis.

West Texas Intermediate for October delivery dropped 87 cents, or 2.1 percent, to $40.45 a barrel on the New York Mercantile Exchange, the lowest close since March 2009. During the day, it had touched $39.86.

The volume of all futures traded was 13 percent above the 100-day average.

Brent crude for October settlement fell $1.16 to $45.46 a barrel on the London-based ICE Futures Europe exchange, also the lowest close since March 2009.

Oil balances point to further oversupply throughout 2015, “begging the question how low can oil go?” Citigroup analysts, led by Seth Kleinman, said in the note.

U.S. crude inventories rose by 2.62 million barrels to 456.2 million in the week that ended Aug. 14, almost 100 million above the five-year average. Analysts surveyed by Bloomberg had projected an 820,000-barrel decline in the stockpile.

America’s output climbed 8.8 percent from a year earlier to 9.52 million barrels a day in July, the highest for the month since at least 1920, the industry-funded American Petroleum Institute said Thursday.

The drop in oil prices came as drillers added rigs in U.S. oil fields for the seventh time in eight weeks. Rigs looking for oil rose by two to 674, according to Baker Hughes, the Houston oil field services company. It is the highest number since April.

A boost in drilling equipment in the Williston Basin of North Dakota — which added three rigs searching for oil — and other shale plays offset declines in the Eagle Ford and Permian formations — which had a combined loss of eight.

“Eventually, supply and demand will come into balance, but it will take a while,” Chip Hodge, who oversees a $9 billion natural resource bond portfolio as senior managing director at John Hancock in Boston, said by phone.

The Organization of the Petroleum Exporting Countries has pumped above its 30-million-barrel-a-day quota for more than a year, according to data compiled by Bloomberg.

Saudi Arabia told OPEC that its June production was a record, exceeding the previous high set in 1980. Angola plans to ship 1.83 million barrels a day in October, the most since November 2011, according to a preliminary loading program obtained by Bloomberg.

This story was originally published August 21, 2015 at 4:35 PM with the headline "Oil briefly slips below $40 for first time since 2009."