As a end result, oil merchants are in search of additional indicators of a slowdown in D.R. manufacturing to place a flooring underneath the market, one thing that seems to be taking far longer than anticipated as drillers develop extra environment friendly and drive down prices.
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OPEC countries are still pumping oil at near-record levels – about 32 million barrels per day in July.
U.S. October crude CLc1 settled 87 cents, or 2.1 percent, lower at $40.45 a barrel, having touched a new 6-1/2-year low of $39.86 a barrel.
Its decision to maintain its production target at 30m barrels per day (bpd) despite signs of weakening demand and a growing glut in crude set the narrative of a pitched price war between the cartel and US shale.
“There is a concern about the health of the Chinese economy, but as numbers have shown the need to import oil is increasing”, an OPEC delegate from a Gulf oil producer said.
“Eventually, supply and demand will come into balance, but it will take a while”, Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone.
Seth Kleinman, head of energy research at Citigroup (NYSE:C), agrees: “The big move in the back of the (futures) curve reflects that, unlike in 2008/9, this is not a short-term demand-led dip, but is really a structural supply-led drop”. In February 2009, closing US oil prices last bottomed out at $33.98 a barrel during the Great Recession. While there is no doubt that part of the recent selloff in oil is a production story, the real momentum behind this selloff is real concerns about demand destruction from a faltering China and perhaps Europe, and just maybe the whole world getting prepared to go bust.
Economic activity in China is at its lowest point in five years.
WTI Crude oil futures plunged to a 6 ½ year low last week, setting in motion a sell-off in unleaded gasoline and energy stocks. Gasoline is averaging $2.63 per gallon, compared with $3.44 a year ago.
This is why we look at technical data and the market structure – they can at least provide us with the occasional hints about market perceptions and psychology.
Brent crude, which serves as a benchmark for purchases of oil worldwide, fell $1.07 to $45.55 in London.
Russia, the other major global rival to Opec has also managed to cope with lower prices better than most. Private-equity firms, which have amassed large energy-focused funds, could find buying opportunities among distressed producers. Today that number has shrunk to 40%, largely because of surging U.S. production. Many companies reported higher-than-expected production in their second-quarter earnings.
James Reeve, deputy chief economist, assistant general manager at Samba Financial Group, said: “Oil prices are likely to remain weak for the rest of the year”. Shrugging off the fact that the complete Iranian oil will reach the market by mid-2016 the prices started to soften. As companies are forced to retrench, cut costs down to the bone, and hope to survive the downturn, new oil fields won’t get drilled, especially not the multibillion dollar projects, such as deepwater drilling.
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But Scott said some pressures may come to bear that will force oil prices up.
