Oil falls under $45, set for a monthly loss

31 Aug 2015 | Author: | No comments yet »

Brent crude tumbles as fundamentals back in focus.

London: Oil fell below $49 a barrel on Monday after its biggest two-day rally in six years last week, pressured by a supply glut and renewed concern about a hard landing for China’s economy. Oil futures headed lower on Monday as persistent concerns surrounding demand from China and the global glut of crude supplies contributed to a drop below $45 a barrel for U.S. prices, which are poised for a monthly loss of more than 6%. International benchmark Brent crude climbed 10% last week but was still heading for its fourth straight monthly decline and has risen in only two of the past 14 months. “Volatility was high last week, so now we’re seeing some retracement – $50 is proving to be a resistance level,” said Olivier Jakob, analyst at Petromatrix, referring to Brent. “It is still a market which is very well supplied.” China will release its official reading on August factory conditions on Tuesday and economists polled by Reuters believe activity likely shrank at its fastest pace in three years.

News that the Energy Information Administration lowered a monthly estimate on domestic crude-oil production failed to provide support for prices as U.S. equities fell, raising more concerns about a potential slowdown in energy demand, and as traders gauged the likelihood of a Federal Reserve interest-rate hike this year. Brent crude fell more than 3 per cent in early hours of New York trade-to-trade at $48.54 per barrel, and WTI crude also fell 2.79 per cent to be at $43.96. “A speculative washout of overextended short positions caused the knee jerk reaction on Thursday and Friday,” Ole Hansen, head of commodity strategy, Saxo Bank said. The Organization of the Petroleum Exporting Countries, which used to adjust its own supply to keep crude above $100, decided in 2014 to let prices fall in order to retain market share. It gained 10 per cent last week. “Fundamentals in terms of the imbalance between supply and demand are most likely going to get worse before improving the near-term.

Nonetheless, the US government on Monday released new domestic oil production data for the first half of 2015 which showed output was as much as 130,000 bpd lower than first estimated, potentially lending prices some support. A possible increase in US interest rates is expected to support the dollar, making dollar-priced commodities including oil more expensive for users of other currencies. In a report Monday, the EIA said it has improved its monthly reporting of crude-oil production and incorporated the first survey-based reporting of the data. Investors are looking ahead to US business surveys, factory orders, trade data and Friday’s nonfarm payrolls this week after comments by a top Federal Reserve official suggested a September rate rise was more likely than some investors expected. Meanwhile, the Kremlin said Russian President Vladimir Putin and Venezuelan President Nicolas Maduro would discuss “possible mutual steps” to stabilize global oil prices as part of Moscow’s cooperation with OPEC.

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