West Texas Intermediate, the U.S. benchmark for crude oil prices, continued searching for a new bottom, dropping 1.5 percent from Thursday to trade at $40.66 per barrel. This is actually a huge surprise just considering that about a year ago, prices for crude oil were a little above $100 a barrel.
After rallying for much of the year, the great oil crash that started in the fall of 2014 has returned in the summer of 2015 with a vengeance.
As a result, oil traders are looking for further signs of a slowdown in U.S. production to put a floor under the market, something that appears to be taking far longer than expected as drillers grow more efficient and drive down costs.
Oil has managed to hold above the key $40 a barrel mark, but US banking giant Citigroup said on Wednesday prices could fall to $32 a barrel, a multi-year low last seen in 2008.
Besides supply being really high, there is also the issue of the sluggish economy and global markets, which have hindered demand quite a bit.
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With shares of the United States Oil Fund ETF (NYSE: USO) already down 62 percent over the past year and sitting at all-time lows, is there still room to the downside?
“The market is stuck in a relentless downtrend”, said Robin Bieber, a director at London brokerage PVM Oil Associates.
Oil prices tumbled on Friday after a survey showed Chinese factories contracted at their fastest pace since the depth of the global financial crisis in 2009, sending investors scurrying to the safety of bonds and gold. Brent crude got particularly hit this week, loosing several dollars on the price to close the week. Diesel lost 3 percent, hitting six-year lows.
WTI for October supply dropped 87 cents, or 2.1 %, to settle at $40.45 a barrel on the New York Mercantile Change, the bottom shut since March 2009.
Every two years, oil production in the U.S. has increased by 2 MMbpd, the equivalent of Norway because of increased shale supplies.
Stockpiles rose partly because a US refinery closed for repairs last week, but also because imports rose to their highest level since April.
“Global equities are a negative price driver for the oil and broader commodity complex”, Dominick Chirichella, senior partner at Energy Management in New York said in a note.
The Organization of Petroleum Exporting Countries is widely expected to only boost crude production despite the glut in the global oil market.
Exports of refined products climbed 7.6 per cent to 4.82 million barrels a day last month, a record for July.