The major benchmark Brent crude and West Texas Intermediate oil futures tumbled 6% and 7% again overnight to sell for US$56.72 and US$52.86 a barrel this morning as concerns over slowing global growth triggered a selloff.
The other issue underpinning the retreating oil price is oversupply primarily brought about by the US shale industry that is competing for market share with the OPEC group of oil-producing nations.
In response OPEC has refused to cut its own monthly supply quota of 30 million barrels per day (mb/d) and oil appears in a downtrend, despite forecasts for total global demand of 92.50 m/bd through 2015.
The demand growth side is driven by China and India, which OPEC expects to post economic growth of 6.9% and 7.5% respectively in 2015, compared to a feeble 1.4% in the Eurozone and 1% in a stagnant deflation-riddled Japanese economy.
Lower-than-expected growth in North America hit by some extreme weather in the first quarter has led to predictions of 2.4% total growth in 2015, although the problem for OPEC is much of that growth is now fuelled by the US shale industry.
Local victims of the falling oil price include oil and LNG giants Woodside Petroleum Limited (ASX: WPL), Oil Search Limited (ASX: OSH), Senex Energy Ltd (ASX: SXY) and Origin Energy Ltd (ASX: ORG).
For most of 2015 oil futures appear to have settled in a range where around US$65 a barrel acts as a ceiling because much above this price triggers a positive production response in the US, which would add to oversupply issues.
While US$45 a barrel acts as a floor on the marginal of cost production for producers globally and much lower than this is unsustainable.
For the forseeable future it looks likely that Brent crude futures oil will remain range bound between US$45-US$65 a barrel, with WTI futures tracking marginally lower.
This is not rocket science and the long / short futures and options interest volumes on US exchanges will find it hard to disguise this speculators' secret.
Smart investors know the best way to create long-lasting wealth is not to speculate, but buy good quality businesses that are not forced to take prices for their product.
Although the range bound nature of oil prices suggests anyone looking to take a chance should buy towards the bottom of the cycle and be prepared for volatility.
Why take a chance on the oil price, when you could buy gangbusters growth stocks on attractive valuations?
I'm not kidding either!
