Brent and US crude both fell to six and half year lows and Carsten Fritsch, oil analyst at Commerzbank, speaking at Reuters” Global Oil Forum, said the collapse was “not about oil market fundamentals’ but about China.
But oil industry developments in recent days did nothing to quell fears of a continued oversupply amid weakening demand.
“Holding risk is suddenly much less desirable, so the cost of insurance against price moves goes up”, said Paul Horsnell, global head of commodities research at Standard Chartered. Oil hadn’t closed under $40 since February 2009, though it briefly traded under that degree on Friday.
Brent oil tumbled 6.1%, extending last week’s 7.3% drop. In the U.S., the number of rigs drilling for oil has risen for five straight weeks, “offering no respite to oil bulls hoping that lower prices may curb production“, said TAC Energy in a note.
In coal, the most common fuel source for electricity generation, API2 2016 futures hit 12-year lows last week, and physical prices for cargoes from Australia’s Newcastle or South Africa’s Richards Bay terminals are back to levels last seen before the 2008/2009 boom and bust. Among companies in the Dallas-Fort Worth region, Exxon Mobil stock fell 5 percent on the day to close at $68.71.
The deterioration of the Chinese stock market hit an all-time high on Monday, since the start of the global financial crisis.
Brent crude, a benchmark for worldwide oils utilized by many U.S. refineries, slipped $2.77 to $42.69 Monday and is at its lowest ranges since March 2009.
The dim outlook Monday stood in sharp contrast to earlier this summer, when crude prices rose from their January doldrums to more than $60 a barrel. The European benchmark crude traded at a $US5.03 premium to West Texas Intermediate, the US marker grade.
Iran was OPEC’s second-largest producer before worldwide penalties over its nuclear program began in mid-2012.
“We’ve still got a glut”, Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said.
The EIA forecasts that falling crude oil production in the US will help moderate oil inventory builds in the coming months, leading to slightly higher expected prices. At the same time, crude production from Iraq and Saudi Arabia increased in July, Hittle said. Growing supplies at Cushing would likely further weigh on U.S. oil prices. The U.S.is churning out oil at a rate not seen in decades.