Crude (CLZ15.NYM) oil prices have been hovering in the $40-range for months, but could be headed even lower.

A leading indicator of sentiment in the oil markets – the CBOE Crude Oil Volatility Index (^OVX, referred to as the “Oil VIX”) – closed at 41.54 on Wednesday. Though down from the mid 50s in July, it has been above 30 for much of the year. Last year, when crude prices were around $100 per barrel, the Oil VIX rarely poked above the 20 level.

“This elevated implied volatility means that there's some sort of risk being priced in,” said Russell Rhoads, senior instructor at the Options Institute of the Chicago Board Options Exchange. Crude “doesn't seem to move to the upside so it's very possible we could see new lows in oil before the year is out.”

Like the CBOE Volatility Index (^VIX), which measure expectations on the S&P 500 (^GSCP), the Oil VIX is sometimes viewed as inversely related the market’s outlook on crude’s future moves.

Supply and demand

On the supply side, crude inventories remain near record levels. Data from the U.S. Energy Information Agency show stockpiles excluding the Strategic Petroleum Reserve are at 482.8 million barrels, not far off  the 490.1 million barrel record set in April. For the previous 10 years, that number has hovered around 300 million.

Demand, however, may soften in the coming months. The International Energy Agency (IEA) is forecasting global demand to fall to 1.2 million barrels per day from 2015’s 5-year high of 1.8 million barrels per day. It sees total demand averaging 95.7 million barrels per day in 2016.

The China question

Questions about China’s economy are also weighing on crude. China is the second largest consumer of oil at roughly 11.1 million barrels per day, but it is still behind the U.S. daily use of nearly 20 million barrels.

Uncertainty with China is also evident in the options market. “When you look at the implied volatility of options on the Chinese market, there's still risk priced in going forward,” said Rhoads. “You've got assume that's based on some questioning of the fundamentals of the Chinese economy. And a soft Chinese economy is going to result in less demand for oil as well.”