Oil dips as global supplies rise, fresh concerns over Asian economies

“There is much talk about the product glut replacing the oil glut, and this is a worrisome indicator for crude demand”, said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.

WTI fell 22 percent from early June to Monday’s close, taking it past the 20 percent drop that characterizes a bear market. United States crude and gasoline supplies are at the highest seasonal level in at least two decades. That wrecked refining margins and hurt the earnings of Exxon Mobil, BP and Royal Dutch Shell.

Crude prices remained almost 55 per cent above 12-year lows of $US26 to $US27 hit in the first quarter.

The lack of investment “will have a big impact on global supply”, said Van Cleef, who forecast Brent will reach $70 next year.

In London, North Sea Brent for October delivery fell 34 cents from Monday’s close to finish at US$41.80 on the Intercontinental Exchange.

The last time oil settled below the US$40 threshold was on April 18, when it was US$39.78.

The price of many USA and global oil companies took a hit overnight, so the prices of Woodside, Santos, Origin Energy and Oil Search will all take a hit today. However in recent weeks, they have come under renewed pressure due to increased USA oil drilling activities, Libya’s expected return to the export market, and the possible output increase by OPEC members Iraq and Iran.

Some traders said oil could see technical support in the near-term after Brent and WTI fell below their 200-day moving averages on Friday. USA crude inventories rose to 521.1 million barrels through July 22, keeping supplies more than 100 million barrels above the five-year average, Energy Information Administration data show.

“With the market continuously focussing on oversupply, this bearish trend seems hard to change in the near term”, said Hans van Cleef, ABN AMRO senior energy economist. U.S. refineries usually reduce operating rates to perform seasonal maintenance as the Summer driving season comes to an end.

“Prices remain under pressure but we think they are likely to find a floor at around $40 and increase to $50 by the year end”, Weinberg said.

Hedge funds slashed their positive bets on US crude to a five-month low during the week to July 26, while holding a record net short, or bearish position, on gasoline, data showed on Friday.

But there are predictions that the current level of low oil prices won’t last.