Even as crude lurched to six and a half year lows, the threat of a dramatic break far below $40 seemed remote.
U.S. energy firms added two oil rigs last week, the fifth increase in a row, signalling further pressure on a market awash with crude.
Closer to home, the price rout pushed oil stocks in London into the red, along with the rest of the Footsie.
“The petroleum markets are extending last week’s decline along with global equity markets on Monday as worries over slowing Chinese economic growth intensified”, said Tim Evans, energy markets strategist at Citi Futures. Prices tested this level in February 2009.
“We proceed to be apprehensive about new Iranian provides, US drilling exercise growing, upkeep season arising for refineries… that principally prompts individuals to assume the oil market goes to be oversupplied for longer”, stated Melek.
Oil’s worsening global surplus has fueled pessimism and driven prices down by more than 30% since May, prompting hedge funds to cut bullish bets to a five-year low.
China’s major stock indexes slumped more than 6 percent to 8-month lows in early trade on Tuesday before paring losses, after a catastrophic Monday that destabilised financial markets around the world and sparked fears of a hard landing for the Chinese economy, the world’s biggest commodity consumer. Prices fell 4.8 per cent through Friday for an eighth weekly drop, the longest losing streak since 1986.
“There is no end in sight to the nose dive that oil prices have been experiencing for eight weeks now”. A stronger greenback makes dollar-priced oil more expensive for buyers using weaker currencies, denting demand.
But Flynn says he expects the Chinese government to inject monetary stimulus into the economy, rekindling demand and oil prices. Having reached $37.75 yesterday the October WTI crude oil future may attract some additional short covering but at this stage the negative momentum remains firm and renewed selling is expected to emerge towards trend-line resistance just below $41/b.
Iran was OPEC’s second-largest producer before worldwide penalties over its nuclear program began in mid-2012.
U.S. benchmark oil ended trading down $2.21 to $38.24 per barrel on the New York Mercantile Exchange.
Yet the bank said that due to improved marginal costs, which it estimates to have improved by 20% for US shale drillers, “commodities will underperform” relative to other assets. At the same time, crude production from Iraq and Saudi Arabia increased in July, Hittle said. That’s the highest level since May 1.