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Why oil could go as low as $30 a barrel

Oil rigging equipment in a field outside of Sweetwater, TexasOil rigging equipment in a field outside of Sweetwater, Texas
Oil rigging equipment in a field outside of Sweetwater, TexasPhotograph by Cooper Neill — Reuters

Crude oil prices are continuing their yearlong plunge amid the global oil supply glut and some analysts think the commodity’s decline will only get worse before it gets better.

The price of U.S. oil has fell to nearly $40 per barrel this week — its lowest point in six years and nearly a 60% decline from last summer’s highs — and The Wall Street Journal reports that analysts at Citigroup think there is “a 90% likelihood” that the price will drop closer to $30 a barrel very soon.

Several factors are contributing to the likely continued price drop, including the end of the summer season, when demand for oil is generally at a high point, as well as market concerns over the sluggish Chinese economy and the fact that oil-producing countries continue to stockpile their supplies. Oil inventory data released this week showed U.S. commercial crude supplies remain near their highest levels in several decades, as the U.S. shale boom continues to drive record production. Meanwhile, Middle Eastern countries, led by the Organization of the Petroleum Exporting Countries (OPEC) have shown no signs of cutting their production targets to bring global supply more in line with demand.

While a short-lived oil rally took prices above $60 per barrel earlier this year, the industry’s supply concerns have mostly kept prices in a free-fall after touching highs near $100 per barrel of crude oil last year.