Is Oil Headed For Another Low?

Oil prices made a modest recovery on Tuesday morning, but a dip on Monday gave traders reason to question whether the commodity was heading for another trough in the coming weeks.

Brent crude oil and WTI have both held above $50 per barrel for the last 10 years, but with production continuing to outpace demand, many analysts believe that prices could be heading lower.

Supply Glut

Last week, data from the Organization of the Petroleum Exporting Countries (OPEC) showed that the group's output was at its highest monthly level in recent history this July. That report, coupled with expectations that Iran will start contributing an additional 500,000 barrels per day once sanctions are lifted, helped spur on worries about the growing supply glut.

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Demand Dampened

Although oil prices have been falling, global demand has been relatively weak, as many of the world's largest consumers are struggling with sluggish economies. China's manufacturing growth slid in July, suggesting that the world's number one oil consumer won't have much of an appetite for crude.

Meanwhile, U.S. consumers appear to be remaining cautious with their spending habits despite increased savings at the pump. While lower oil prices typically translate into economic growth and consumers with more purchasing power, data from the United States showed that consumer spending rose at its slowest pace in four months in June.

Where Are Prices Headed?

Some analysts say that the combination of factors putting downward pressure on crude is likely to push oil prices down to $45 in the coming weeks.

However, the majority of forecasts put crude prices between $60 and $70 per barrel through 2016. Most agree that the demand for oil will be enough to keep prices from remaining at or around $50 for long, though a return to the $100 per barrel price point seen in earlier years is also unlikely any time soon.

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