Crude oil closes below $40 US for 1st time since April

Crude oil futures settled below $40 US a barrel Tuesday for the first time since April amidcontinuing oversupply worries.

The New York futures contract for September delivery settled at$39.51US a barrel, down55cents from Monday's close. The last time oil closed below $40 US was on April 18, when it closed at $39.78 US.

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That price also represents a tumble of more than 20 per cent from its recent peak above $50 US a barrel in June.

The energy sector of the Toronto Stock Exchange slipped 1.7per cent.

The most recent inventory figures from the U.S. Energy Information Administration (EIA) showed that the U.S. added 1.7 million barrels of crude in the week ending July 22 pushing thecommercial crude oil inventory figure to "historically high levels" for this time of year.

The EIA said the 521.1 million barrels in the U.S. stockpile is more than 61 million barrels higher than it was a year ago and more than 150 million barrels above the supply figure two years ago. The next inventory report from the EIA will come tomorrow.

Pump pricesdown 16% in past year

While the oil industry isn't happy about the recent slump in the price they get for their products, motorists are reaping the benefits.

A weekly survey of pump prices by the Kent Group says the average price for a litre of regular unleaded gasoline across Canada was $1.008as of Tuesday, down 1.6 cents from last week. That's a drop ofalmost17per cent from a year ago.

But there are predictions that the current level ofoil prices won't last. Bank of America Merrill Lynch head of commodities research told Bloomberg Television thatoil will likely be back above $50 a barrel towardthe end of this year.

Bloomberg also surveyed 20 analysts for their thoughts on where oil prices would be next year. Their median estimate was that oil would average $57 a barrel in 2017.

MartinPelletier, portfolio manager atTriVestWealthCounsel in Calgary, saidhe expectsto see oil pricescontinuingto drift lower over the coming months."I definitely think there's more downside than upside with oil prices here."

However, over the longer term, oil below $40 US a barrel is not sustainable from thesupplyside, he said.

"Prices will have to return to higher levels in order to see increased supply come on the market to meet growth in demand,"Pelletiersaid.