Oil prices steadied on Tuesday, helped by a dip in the dollar, but were on track for their biggest monthly drop since March in the face of a global supply glut.
A nuclear deal between Iran and the West that is likely to unleash more oil on a market where slowing Chinese growth and a faltering European recovery have eaten into demand and stripped almost 11 percent off the price of crude oil so far in July.
Iranian Supreme Leader Ali Khamenei last week vowed to defy American policies in the region, despite the deal over Tehran’s nuclear program, in a speech U.S. Secretary of State John Kerry on Tuesday called “very disturbing”.
“The Kerry comments are worrying. They suggest implementing the Iran nuclear deal may not be as straightforward as it originally seemed, and may be therefore that Iranian oil exports could reach the market more slowly than expected, perhaps,” said Tamas Varga, analyst at London brokerage PVM Oil Associates.
Varga said he expected the next move for crude to be downwards and saw the next target at $55.60 for Brent.
Brent crude for September LCOc1 was 15 cents lower at $56.50 a barrel by 0825 GMT, after settling 45 cents lower on Monday. Brent has fallen in 10 out of the last 12 months, making this its weakest period since 2008.
U.S. August crude CLc1, set to expire on Tuesday, fell 15 cents to $50.00 a barrel. The front-month contract fell below $50 a barrel on Monday for the first time since April and is down some $9 a barrel for the month.
Last week, the International Energy Agency said it expected global oil demand growth to slow next year to 1.2 million barrels per day (bpd) from 1.4 million this year – far less than needed to balance stubbornly growing supply.
“Definitely, the current set of data on the oil markets doesn’t give you much room for optimism at the moment,” Commerzbank head of commodities research Eugen Weinberg said.
Investor expectations for the first U.S. rate rise in almost a decade this year has pushed the dollar .DXY up by 5 percent over the last four weeks, which has put additional pressure on crude oil. [FRX/]
A rising dollar makes it more profitable for non-U.S. investors to sell dollar-denominated assets, while higher interest rates tend to sap demand for credit.