U.S. Oil Could Return to 2008 Low of $32 in Citigroup View

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Oil could fall to lows last seen during the global financial crisis amid a persistent supply surplus, Citigroup Inc. said.

“Balances point to further oversupply throughout 2015 begging the question how low can oil go,” Citigroup analysts led by Seth Kleinman said in an e-mailed report Wednesday. The U.S. crude price of $32.40 a barrel reached in 2008 “is a conceivable reality.”

Crude has tumbled more than 30 percent since June amid signs that producers are maintaining output even after oil fell back into a bear market. West Texas Intermediate, the U.S. benchmark, fell $1.82 to $40.80 on the New York Mercantile Exchange, the lowest close since March 2009.

Prices may keep falling, even below producers’ operating costs, without forcing cutbacks in output, the bank said. Shutting down production is costly and can be permanent, which makes “high-end costs a tentative floor which can easily be breached,” it said.

U.S. shale oil production will eventually respond to low prices, with access to finance dwindling as “capital markets are getting nervy,” Citigroup said.

“The recent collapse in WTI combined with the potential reductions on access to capital for the industry could well see this trend halted,” it said, referring to the recent increase in the number of rigs drilling for oil in the U.S.

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