Who would have wanted oil to trade at $39.86 – the lowest level since Mar 2009? And when will this downward spiral finally end? Downtrend Since the middle of last year, the market is witnessing a freefall in crude prices. In fact, the price of West Texas Intermediate (WTI) fell more than 60% as compared to mid 2014, when oil was trading above $100 each barrel. Shale revolution, when U.S. shale producers went on a production spree by using fracking and horizontal drilling techniques, is responsible for the slippage. Let’s get back to the below-$40-a-barrel story. The weakening Chinese economy and the weekly rig count report showing another increase in the number of drilling rigs operating in the U.S were responsible for the ugly slip. In China, manufacturing activity for the month of August touched the lowest level since the last six and a half years, basically underlining a frail economy. This also highlights that if China wants to reach its 7% GDP growth target in 2015 – the lowest in years – the country will have to come up with measures to stimulate its economy. In fact, without a step-up, some analysts apprehend that China’s economic activity may fall below 7% in the third quarter. This will hamper oil demand from the world’s second-largest consumer. Back in the U.S., the crude reality was revealed by the Baker Hughes Inc. report. News that oil producers increased their rig count for five straight weeks shocked an already over-supplied market. It is to be noted that the reason behind increase in rig count amid unfavorable business scenario is due to some upstream energy firms hedged crude at profitable prices for 2016, when the commodity recovered slightly during the second quarter this year. Any Respite? Almost all oil giants cowered under the oil carnage with their stock prices moving down. Among them, BP plc BP, Chevron Corporation CVX, Royal Dutch Shell plc RDS.A and Exxon Mobil Corporation XOM with a 3.5%, 4.4%, 3.2% and 3.3% respective decline are worth taking a look. The demand and supply imbalance is striking and with little hope of a steady rebound. Until China recovers and producers put a lid on volumes, crude is fated to fall. And if market predictions hold any truth, there is hardly any reason for investors in this space to rejoice. This is because analysts hopeful of oil rallying by the second half of this year, now do not see any crude recovery until 2017 or may be 2016, but too in the second half, if conditions favor. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report BP PLC (BP): Free Stock Analysis Report CHEVRON CORP (CVX): Free Stock Analysis Report ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report EXXON MOBIL CRP (XOM): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research
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