Standard Chartered bank said there was “no fundamental justification for recent oil price falls” and that “the global oil market has rebalanced, and US crude supply and inventories are expected to fall”.
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With global oil inventories remaining at elevated levels, West Texas Intermediate crude – the US benchmark – fell below $40 in afternoon trading amid signs of increasing USA production and reduced geopolitical disruption.
French bank Societe Generale said it expected crude prices to bottom out in the high $30 levels and not return to the $26-27 lows from earlier in the year.
Price for United States crude fell below the psychologically important level of $40 a barrel in early trading on Tuesday.
Saudi Arabia also maintained output close to record highs as the top OPEC exporter tries to maintain market share and meets seasonally higher domestic demand.
Record inventory levels, additional supply capacity and weaker demand expectations led Natixis analysts to reduce their 2016 oil price estimates on Tuesday.
Futures were up 0.3 percent in NY after dropping 14 percent in July. When he made the prediction that oil will fall to $40 per barrel in June, many people thought that he was a doomsday prophet; however, his forecast came through on Monday.
Oil fell during afternoon trade in Asia Wednesday, with USA crude hovering near three-month lows as traders awaited data that will give hints of demand in the world’s top consumer.
Hedge funds slashed their positive bets on US crude to a five-month low during the week to July 26, while holding a record net short, or bearish position, on gasoline, data showed on Friday.
USA crude closed below US$40 a barrel Tuesday, erasing early gains as persistent worries of a glut offset the boost from a weak dollar early in the session.
U.S. West Texas Intermediate (WTI) crude CLc1 settled down 55 cents, or 1.4 percent, at $39.51 a barrel, after earlier rallying to $40.91. Data on global oilrig count reported an increase to 1,407 becuase USA drillers are pumping more oil. September diesel futures dropped 3.8% to $1.2579, the lowest settlement since April 18.
“This seasonal drop in prices does still have room to target $35 before maybe reversing toward the end of the year”, he added.
But prices could struggle to make much headway, analysts said, as sentiment remains bearish. But as the impact of those interruptions faded, investors shifted their focus back to the oversupply issues that have dogged the oil markets for two years.
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Eventually, oil producers will need to turn off the spigot to allow oil to rise.
