Oil descends to three-month lows on glut woes

July 29, 2016
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Oil prices have suffered a rapid descent this month on snowballing concerns over a crude supply glut, weak demand growth and a strong dollar/AFP
Oil prices have suffered a rapid descent this month on snowballing concerns over a crude supply glut, weak demand growth and a strong dollar/AFP

, LONDON, United Kingdom, Jul 29 – World oil prices descended this week to their lowest levels for more than three months, rocked by renewed worries about a global supply glut and increased production.

The market extended its losses on Friday to a seventh straight day, as traders’ screens were awash with red.

Overview
  • The commodity has slipped nearly 20 percent since its 2016 peak above $50 in early June as the crucial US holiday driving season comes to an end and temporary disruptions to output in Canada and Nigeria ease.
  • On Wednesday the US government's Department of Energy reported the first increase in US crude stockpiles since May.

In morning deals in London, Europe’s main contract Brent North Sea crude slid to $41.83 — the lowest level since April 18.

US benchmark West Texas Intermediate (WTI) struck $40.57 a barrel — which was a trough last reached on April 20.

“Oil prices have continued their recent declines this week, sinking to the lowest level in three-months as the fundamental landscape for crude has become a little less supportive,” said analyst David Cheetham at London broker XTB.

The commodity has slipped nearly 20 percent since its 2016 peak above $50 in early June as the crucial US holiday driving season comes to an end and temporary disruptions to output in Canada and Nigeria ease.

On Wednesday the US government’s Department of Energy reported the first increase in US crude stockpiles since May.

Crude reserves added 1.7 million barrels in the week to July 22, confounding market expectations for a drop of two million.

The DoE added that inventories were 13.4 percent up year-on-year, while gasoline or petrol stocks were 11.8 percent higher.

Supplies are now at levels not seen for two decades.

“The DoE inventories showed a first increase in ten weeks on Wednesday in printing a rise of 1.7million barrels for US stockpiles,” added Cheetham.

“Higher inventories suggest either a lack of demand or an increase in supply, and the latter seems more plausible at the moment.”

Persistently high inventories have unnerved markets with the approach of the end of the US summer driving season — a time of peak demand for motor fuel.

“Expectations of tighter supply-demand balance on the market seem to be evaporating,” added Gene McGillian of Tradition Energy.

“This correction is approaching levels where we’re going to start finding support.

“We might not have all the factors that helped drive us above $50 but the core ones are still in front of us.”

“US production still is still a million barrels below where we peaked a year ago,” said McGillian.

“Oil demand seems to be a little uncertain but there are some expectations global growth will continue to go and I think that’s going to provide support to the market in the coming weeks.”

Adding to downward pressure on crude is a slow but steady rise in the number of rigs coming back online in the United States.

Companies were forced to shut installations earlier this year as prices sank to near 13-year lows below $30.

But the rise in recent months has led them to reopen the rigs as they become more cost-effective.

In trading Friday at 1045 GMT, WTI for September delivery was down 34 cents at $40.80 a barrel compared with the close on Thursday.

Brent for September delivery shed 62 cents to $42.08 per barrel.

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