U.S. crude remains below $40 as oversupply weighs
Oil prices remained weak on Wednesday, with U.S. crude below $40 per barrel and Brent under $42, as fuel oversupply and stuttering economic growth weighed on markets, although prices did receive some support from a weaker dollar.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were trading at $39.54 per barrel at 0651 GMT (2:51 a.m. ET), slightly above their last close and well below the $40 marker they settled below for the first time since April in the previous session.
International Brent crude futures LCOc1 failed to hold $42, trading at $41.77 per barrel.
Analysts said a weaker U.S. dollar, which has shed 2.5 percent in value against a basket of other leading currencies .DXY since July highs, was lending oil markets some support by making fuel imports cheaper for countries using other currencies, potentially stoking demand.
But they added oil prices would be under downward pressure in the near-term due to rising supplies, including from Libya, high crude and refined product inventories, as well as an uncertain demand outlook.
“In the last 72 hours, there have been reports of successful negotiations to re-open blockaded oil terminals in Eastern Libya and U.S. airstrikes against Daesh (ISIS) in Sirte. These increase the chances of a production ramp near-term, from 300,000 barrels per day (bpd) to 600,000 bpd,” Morgan Stanley said on Wednesday, although it added that “longer-term (production) growth still looks challenging.”
The fuel market’s weakness was also seen in physical markets, with Abu Dhabi National Oil Co (ADNOC) saying it had cut the July retroactive selling price for its benchmark Murban crude MUR-OSP to $44.60 per barrel, dropping the grade’s differential to Dubai to the lowest in eight months.
“Risks for oil remain skewed to the downside in 2H16. Supply disruptions and risk appetite were supportive April-June, but fundamental headwinds are growing, which outnumber any recent positives,” Morgan Stanley said in a separate note to clients.
The bank said the economic outlook was also weak: “We expect global growth to move below consensus estimates,” Morgan Stanley said.
Oil markets have been dogged by oversupply that started in the crude sector more than two years ago and which has since spread to refined products, leaving storage tanks filled to the brink, and unsold fuel stored on ships.
However, other analysts said recent price falls were overblown, with Citi saying bears, who speculate on falling prices, having “gone wild in oil at $40.”
Standard Chartered bank said there was “no fundamental justification for recent oil price falls” and that “the global oil market has rebalanced, and U.S. crude supply and inventories are expected to fall.”
Source: Reuters
