United States crude oil fell on Tuesday to end below $40 a barrel for the first time since April as persistent worries of both a crude and refined fuel glut and a slide in USA equities offset an early boost from a weak dollar. Fewer shipments of crude oil by rail from the Midwest (PADD 2) to the East Coast (PADD 1) account for about half of the decline.
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Total gasoline inventories decreased by 3.3 million barrels last week, according to the EIA, and remain well above the upper limit of the five-year average range. “This whole move back down again could cause the increase in activity to stop in its tracks”.
Speculators, including hedge funds, have turned increasingly bearish toward crude and refined products in the last two months, adding the equivalent of 56 million barrels of extra short positions in the three main Brent and WTI futures and options contracts in the week ending July 26.
The report also displayed that crude oil inventories increase by 1.4 million barrels the previous week.
Prices dropped below $40 a barrel on Monday, the first time since April.
“We’re probably 200 million (barrels) in crude oil inventories more than is necessary to function”. “Right now, the supply and demand looks abysmal and rolling it into the maintenance period coming up in the fall makes it look even worse”, ICAP energy futures broker Scott Shelton said, referring to the maintenance season for refineries.
There are worries that net Chinese oil imports weaken this year despite China surpassing South Korea to be the top Asian buyer of North Sea Forties crude.
The US Department of Energy will release the latest official stockpile data later Wednesday.
Brent crude futures were trading at $42.77 a barrel at 0942 GMT (3:12 p.m.in India), down 33 cents from their last close and down from an intraday high of $43.65 a barrel.
Other analysts expect the oil market to recover later this year or next year.
“The bandwagon trade just two months ago was that we will hit $60, but now $35 is looking like more of a reality.”
Average US daily domestic crude production was meanwhile down 55,000 barrels at 8.5 million.
Oil fell during afternoon trade in Asia Wednesday, with U.S. crude hovering near three-month lows as traders awaited data that will give hints of demand in the world’s top consumer.
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For the week though, Brent was on track for a gain of about 3 percent while WTI was marginally lower, helped by technical short-covering and bargain-hunting that pushed oil prices up by almost 6 percent over the past two sessions.
