Just in case investors hadn't suffered enough, analysts are now saying oil will fall below US$40 a barrel.
Oil has crashed more than 60% since June last year in what has become the second-deepest rout on record. While it traded at a high of around US$115 a barrel seven months ago, it has since tumbled to just US$46.38 overnight.
Indeed, the rout has left a dent in equity markets around the world with energy stocks being the major victims. Companies such as Santos Ltd (ASX: STO) and Senex Energy Ltd (ASX: SXY) have endured falls of more than 40%, while billions of dollars have been wiped from the value of Woodside Petroleum Limited (ASX: WPL), BHP Billiton Limited (ASX: BHP) and Oil Search Limited (ASX: OSH).
While billions of dollars' worth of projects are already at risk of being canned, Bank of America and Société Générale (a French multinational banking group) are now saying prices will drop below the US$40 threshold, according to Fairfax media. Given the massive oversupply in the marketplace, Francisco Blanch, head of commodities research at Bank of America in New York, said that prices could fall to US$35 in the "near term" which could see the closure of many high-cost fields.
A further 25% fall in oil prices from today's level would certainly hurt global equity markets in the near-term, but could actually benefit them over time. Although the energy sector would be hit for six, consumers would save on transportation costs while business costs would also decrease which could result in greater spending throughout the economy, providing a basis for economic growth.
While investors should continue to avoid the energy sector until the high level of volatility wears off, there are plenty of other stocks trading at outstanding prices which could deliver fantastic returns over the coming years.
