Oil Prices Remain Low on Equity Market Rout, Commodity Slump
Oil prices struggled to recover in Asian trade Tuesday, after falling sharply overnight due to bearish sentiment following weakness in equities and commodities markets.
The oil market got some support from expectations that the long-awaited decline in U.S. oil production has begun, but uncertainty about oil production from the Middle East, Iran’s return to the market and U.S. monetary policy are keeping investors on edge.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in November traded at $44.43 a barrel at 0430 GMT, unchanged in the Globex electronic session. November Brent crude on London’s ICE Futures exchange fell $0.01 to $47.33 a barrel.
Oil prices had slipped in the previous session, with Nymex crude losing 2.8% and Brent crude losing 2.6%, snapping their two-session winning streaks. Benchmark crude prices are still down by more than half from a year ago, but price swings in the last couple of weeks have eased from the turbulence seen in August.
Asian equity markets declined across the board Tuesday, after U.S. stocks tumbled overnight, after the sharp drop in China’s industrial profit in August triggered fresh fears over China’s slowdown. Hong Kong’s Hang Seng Index was last down 3.6% and the Shanghai Composite Index was off 1.8%.
Bearish sentiment from falling equity markets has spilled over to oil, but oil prices should maintain their price supports of $44.27 a barrel for WTI crude and $47.29 a barrel for Brent, unless supply-demand fundamentals worsen, said Daniel Ang, an analyst at Phillip Futures.
The overall slump in the commodities complex also weighed on sentiment in the oil market. Prices of key commodities like base metals were driven lower by China concerns, and after shares of mining giant Glencore PLC tanked more than 29% to an all-time low.
However, a key bullish development for oil prices appears to be gathering pace–the decline in U.S. oil production in response to low prices.
“We think that the next key milestones in the decline of U.S. crude oil output are about to be passed … when output falls below 9 million barrels a day, and when year-on-year declines commence,” said Paul Horsnell, head of commodities research at Standard Chartered Bank.
“Our forecast is that both events will happen in October,” he said.
U.S. oil production has already started to fall sequentially following April’s peak of 9.61 million barrels a day, and lower price expectations and deteriorating credit conditions are likely to keep U.S. oil drilling activity low, he said. Later Tuesday, industry numbers on U.S. oil inventories will be closely watched.
Also, there is evidence that oil majors are pulling back from large projects, with Royal Dutch Shell PLC ending its controversial Arctic drilling campaign.
Nymex reformulated gasoline blendstock for October–the benchmark gasoline contract–fell 30 points to $1.3458 a gallon, while October diesel traded at $1.4779, 7 points higher.
ICE gasoil for October changed hands at $456.00 a metric ton, down $0.50 from Monday’s settlement.
Source: Wall Street Journal
