Oil prices rebounded from over three-month lows today, lifted by a drop in the dollar, but concerns of ongoing oversupply weighed on markets and many traders are raising their bets on further price falls.
Advertisement
USA oil inventories rose by 1.1 million barrels in the week to July 22, and data from market intelligence firm Genscape also showed that U.S. production had increased. Even after the projected decrease, stockpiles will remain more than 100 million barrels above the five-year seasonal average. Refineries usually don’t begin to diminish processing until August as the summer driving season ends. “Headwinds (are) growing for 2H16, hence our bearish oil bias”, Morgan Stanley said on Monday in a note to clients, pointing to resilient USA supply, falling demand for transport fuels, and oversupply by refiners, particularly in gasoline. “We all thought the market would rebalance more quickly”. Varga at brokerage PVM said record high stocks and oversupply could drive crude prices down into the mid $30 per barrel area before a significant rally.
Crude has slipped more than 15 per cent since early June after nearly doubling from a 12-year low in February as supply disruptions from Nigeria to Canada trimmed a worldwide surplus. While the global oversupply has eased amid supply disruptions from Nigeria to Canada, high inventories of both crude and refined fuels coupled with signs of faltering demand growth have stifled the recovery. Active rigs in the US grew by 15 last week, the fourth consecutive week of increases.
American benchmark West Texas Intermediate fell 2.7 percent to as low as $41.74 from previous close, while worldwide benchmark Brent crude dipped as low as $43.84, or 3.1 percent. Futures reached $43.40, the lowest since May 10. The North Sea crude ended the session at a $1.59 premium to WTI.
Closely watched US government oil stocks data will be published at 9:30 a.m. CT (14:30 GMT) on July 27.
US rig count was up for the fourth consecutive week increasing by 15 to 462 for the week of July 22, and taking the number of rigs by 58 since mid-May.This signals that the USA production declines are getting closer to an end, which is another negative factor for oil prices.
Brent LCOc1 fell 27 cents, or 0.6 percent, to $44.45.
“There strategic petroleum reserve is absolutely full at about 700 million barrels and they have the highest inventory of crude oil they’ve had in 86 years”, he said.
Advertisement
“Oil is down on the back of very disappointing inventories statistics”, said energy consultant Andy Lipow.
