Wall Street now sees oil falling to $40

Brace for $40-a-barrel oil.

The U.S. benchmark crude price, down more than $60 since June to below $45 Wednesday, is on the way to this next threshold, said Societe Generale SA and Bank of America Corp. And Goldman Sachs Group Inc. says that West Texas Intermediate needs to remain near $40 during the first half to deter investment in new supplies that would add to the glut.

“The markets are continuing to price in huge oversupply in the first half of 2015,” Mike Wittner, head of research at Societe Generale SA in New York, said by phone on Jan. 12. “We’re going to go below $40.”

Oil is seeking a “new equilibrium” as the Organization of Petroleum Exporting Countries abandons its role of keeping supply and demand aligned, according to Goldman. Prices are poised to drop further, testing the ability of U.S. shale drillers to keep pumping.

WTI fell as low as $44.20 a barrel on the New York Mercantile Exchange Wednesday and closed Thursday at $48.48. The U.S. benchmark has dropped 10 percent this month, extending a 46 percent plunge last year that was the worst since the 2008 financial crisis.

OPEC is trying to maintain its share of the global oil market against the rise of U.S. output. United Arab Emirates Energy Minister Suhail Al Mazrouei reiterated Wednesday that shale producers will capitulate before OPEC to lower prices, the latest in more than a dozen comments from Gulf members aimed at hastening oil’s slide and lowering non-OPEC supply. The group upheld its target of 30 million barrels a day at a meeting in Vienna on Nov. 27.

The rout may continue to $35 a barrel in the “near term” because both oil supply and demand will have a delayed reaction to falling prices, Francisco Blanch, head of commodities research at Bank of America in New York, said in a report on Jan. 6. (Bloomberg)