Oil rose in NY amid a weaker dollar and speculation the oversupply still weighing on global markets will diminish, even after prices fell into a bear market on Monday.
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Iraqi military gains against the Islamic State, which was threatening the country’s oil supply, have also pushed down prices. U.S. crude and gasoline supplies are at the highest seasonal level in at least two decades.
But refiners, he said, are not demanding as much crude oil right now, creating the buildup in inventories that fuels concerns about a prolonged stretch of lower prices. “The storage levels are so out of whack”. The global benchmark settled at a premium of $1.50 to WTI for October. American producers have expanded drilling in recent weeks after idling more than 1,000 oil rigs since the start of a year ago.
Morgan Stanley has forecast a drop to the mid-30s level, where they expect oil to find some support, whereas French bank Societe Generale believes that the oil markets will be broadly balanced in the second half of this year and in the first half of 2017.
The Iranian oil minister confirmed the oil glut in a statement to Iranian state television on Monday, but insisted that the balance between supply and demand would be restored in due time. The U.S. government will issue official inventory data on Wednesday.
Demand for crude is set to decline in the next few months.
September is the end of the U.S. summer and the driving season, traditionally a time of peak demand for gasoline, leading analysts to conclude that demand is likely to soften in the coming months. “It’s going to be a bumpy road getting there”.
“I think if it got down to $35, you’d have people stepping in”.
Gasoline futures recently gained 0.8 cent, or 0.6%, to $1.3116 a gallon. The contract slid US$1.54, or 3.7 per cent, to US$40.06 on Monday, the lowest close since April 18.
The demand for crude oil in Asian economies is showing a slowdown.
The result is elevated inventories across the supply chain, including product inventories.
Vincent Piazza, senior energy analyst at Bloomberg Intelligence, said this “wall of output” should keep a limit on oil prices.
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“The latest (US regulatory) CFTC data show that speculators increased their shorts (aka bearish bets) by the biggest volume on record in last week’s data for WTI crude”. Brent net-long positions extended their pullback for a seventh week.
