Oil Prices May Have Further to Fall

Production aplenty means cheaper oil for longer

Why Does Oil Continue to Fall in Price?

Oil bulls got another piece of bad news today from an unlikely source: the Federal Reserve. U.S. crude production has continued to rise in spite of the collapse in oil prices.

The Fed's oil extraction index clocked in at a seasonally adjusted 179.8 in February. That's up 0.4 percent from January and 14.4 percent from a year ago. As Morgan Stanley economist Ted Wieseman put it in a note to clients, the supply/demand imbalance in the oil market "isn't being addressed yet by lower U.S. supplies."  

The nosedive in oil prices has had an impact on oil and gas drilling. The Fed's index for that activity fell 17.4 percent in February from the month before and was down 21.4 percent from a year ago.

Oil analysts say the cutback in drilling eventually will lead to lower production as fewer new wells are developed. It's just not happening yet, based on the latest Fed data. And for a market where prices already are under pressure from a glut of oil, that's not a pretty picture. 

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