Oil may plunge 10% this week

Prices for West Texas Intermediate crude oil this week could see a settlement below $40 a barrel for the first time since February of 2009.

A drop below $40 this week is “definitely in the cards if everything plays out right,” he said. Such a fall would translate into a roughly 10% drop in crude-oil futures prices trading on the New York Mercantile Exchange, after a similar percentage slide last week.

Here are five of the reasons everybody believes sub-$40 oil prices are possible as early as this week:

• Contract expirations tend to add volatility to futures markets. The April contract for Brent crude on the ICE Futures exchange expires at the close Monday, while the April contract for WTI crude traded on Nymex expires at the close on Friday.
• The Federal Reserve, in a statement on monetary policy due Wednesday, is widely expected to remove its pledge to be “patient” in raising short-term interest rates, making way for an interest rate hike as soon as June. That would likely boost the U.S. dollar — and pressure dollar-denominated oil price.
• The U.S. Energy Information Administration will report its weekly petroleum inventory data Wednesday. It is expected to show another larger build in crude inventories, said Zahir. U.S. crude stockpiles have posted increases for nine weeks straight.
• Supplies at Cushing, Okla., crude’s U.S. storage hub, are approaching levels the market has never seen before, Zahir said. Storage capacity is filling up.
• Oil prices on Monday failed to get a boost even as the dollar weakened, showing how “fundamentally weak crude is,” said Zahir. “We need production to come off and until demand picks up here in the U.S. or some shale production comes off crude will, in my opinion, witness short-lived rallies, while it stays in this well entrenched downtrend, he added.