Oil price hits 6.5-year low of nearly $40 a barrel

Oil prices hit a six and  half year low of around $40 a barrel in early Asian trade today, hitting a fresh low, after a surprise rise in US inventories and likely supplies from Iran added to concerns of a supply glut.

US benchmark West Texas Intermediate (WTI) for delivery in September, expiring today, dipped 32 cents to $40.48 after falling sharply in New York to its lowest level since March 2009.

Brent crude for October dropped 25 cents to $46.91 a barrel.

Oil has tumbled more than 30 per cent since prices hit the year's peak in June as producers maintained output levels despite rising inventories.

Added to this is an expected surge in Iran's oil production, which had been severely curtailed by sanctions. Output is currently around 2.7 million barrels per day (bpd) of which 1 million bpd are exported. The figure is a long way off its production levels prior to sanctions.
WTI could drop to $32 on the persisting global surplus, Citigroup Inc said in a report on Wednesday.

The immediate trigger was a surprise expansion in US stockpiles when the market was looking at a contraction.

The US Department of Energy on Wednesday said oil stockpiles rose 2.6 million barrels in the week ending 14 August, and reported a 300,000 barrel rise at the closely watched Cushing, Oklahoma, trading hub.

Analysts, however, do not expect oil prices to fall below $40 a barrel.

American oil prices are expected to average less than $50 per barrel throughout 2015 after the US government's official watchdog lowered its forecast for the next two years.

The Energy Information Administration (EIA) of the Department of Energy has said that West Texas Intermediate blend crude will trade at around $49 per barrel in 2015 and recover only slightly to $54 per barrel in 2016.

This is a $6 and $8 revision on its previous forecasts amid an ongoing slump in prices