By Matt Egan

Oil sinks below $40 for 1st time since 2009

Latest drop is watershed moment for meltdown in energy prices that began last fall

UPDATED 11:35 AM MDT Aug 21, 2015
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NEW YORK (CNNMoney) —Welcome back to a world of sub-$40 oil.



Crude crumbled below $40 a barrel on Friday for the first time since March 2009.

It's a watershed moment for the meltdown in energy prices that began last fall. Keep in mind as recently as June 2014 crude was hovering north of $100 a barrel.

The latest crash in oil prices is another sign that the world still has more oil than it knows what to do with at a time when uncertainty on global growth reigns supreme.

Too much oil
Oil is staring at a massive supply glut that's been led by the surge in production from American shale oil producers.

To the surprise of some, U.S. oil companies have kept pumping rapidly this year despite depressed prices. That's in part because newer technologies and cheaper expenses have made it profitable to produce even at lower prices.

And the highly-leveraged oil companies simply need to pump ferociously just to make their debt payments.

Normally OPEC steps in to balance out the market. But not this time. The cartel, led by Saudi Arabia, has refused to dial back out of fear it will lose more market share to North America and other producers.

Role of Iran's nuclear deal
Geopolitics may also be playing a role. Iran's nuclear deal with the West sets the stage for that country to flood the market with more oil and worsen the supply glut.

Some analysts believe Saudi Arabia, a longtime rival of Iran, may keep pumping oil just to turn the screws on Iran. The Saudis also have the cash flexibility to weather the storm for a bit -- something Iran lacks.

Demand has fallen
Not only is there too much supply, but demand has been sluggish. Developed economies in Europe and Asia are barely growing and emerging markets in Latin America are stumbling.

That's especially true in China, which has slowed dramatically recently.

Gas prices at the pump is down
No matter the cause, the crash in oil prices has been great news for American consumers. A gallon of regular gasoline now fetches $2.65 on average in the U.S., according to AAA.

That's down from $3.44 a year ago. Drivers in some states like Alabama, Louisiana, Mississippi and New Jersey are enjoying sub-$2.40 gas prices.

Some analysts believe that gas prices could soon fall below $2 a gallon nationally, saving millions of drivers at the pump.

At the same time, cheap oil is weighing previously-booming oil states like North Dakota and Texas.

Wall Street is spooked
The oil slide is also weighing heavily on pockets of the stock market. The energy sector of the S&P 500 has lost nearly one-third of its value over the past year alone. Individual companies like Chesapeake Energy, Transocean and Marathon Oil are down more than 50% a piece in the last 12 months.

The oil plunge has spooked some investors who fear it's a warning sign about the global economy. They argue if all was well in the world oil would be rising, not falling.

If oil settles below $40 a barrel it could be looked at as another bearish signal by energy analysts. That's something that hasn't happened since February 2009.

http://www.koat.com/project-economy/...-2009/34846556