Oil slips to $43 as U.S. oil stocks hit fresh record high

Oil could see technical support in the near-term after Brent and WTI’s drop below the 200-day moving average earlier on Friday, some traders said. Oil headed for the biggest monthly decline in a year as brimming crude and fuel inventories stifle a price recovery.

Brent for September settlement, which expires today, dropped 1 cent to US$42.69 a barrel on the London-based ICE Futures Europe exchange. Gasoline consumption averaged about 9.8 million barrels per day, up 2.6 percent from a year ago.

The American Petroleum Institute reported a 0.83 MMbbls (million barrels) draw in inventories for the week ending on July 22.

Oil prices have fallen due to companies increasing output and filled inventories. But while a surplus of refined products is weighing on crude prices, there could be another culprit that does not get as much publicity.

The pressure on prices has been especially strong in recent days.

Data showing weaker-than-expected growth in the USA economy also cast a shadow on potential oil consumption growth.

Tamas Varga, lead oil analyst at PVM Oil Associates, is not convinced: he told CNBC that record high stocks and oversupply could drive crude down to the mid $30s: “The trend is still down and the bears seem to be in control”. There are several other factors that could push oil back down to $35 per barrel or lower.

“The improvement in oil fundamentals remains fragile and continues to feature large offsetting forces: wildfires have helped offset surprisingly strong Iran production, slowing demand growth in India and China in 2H16 will help offset production issues in Nigeria and Venezuela and finally product builds have offset crude draws”, they said. Oil prices soared from 13-year lows in the first half of the year due to rising demand, falling US production, and unplanned supply outages in Nigeria and Canada. MCX oil prices have declined by around 8 per cent in the same period.

“Oil is in a range of US$40 to US$50 (RM161.86 to RM202.32) a barrel and prices below US$40 a barrel are going to be a problem”.

Instead of seeing $60 a barrel, which would support an increase in production, the demand questions, and ongoing supply concerns, mean oil could fall further. Despite being in the midst of the peak summer-driving season in the US, gasoline stocks are well above the upper limit of the average range, according to the EIA.

The bank projects non-OPEC supply to contract by 1.08 million barrels a day in 2016, compared with an average 20-year expansion of 710,000 barrels a day. Heading into the monetary policy meeting, the BOJ was widely expected to cut interest rates and expand Quantitative Easing in an effort to boost persistently sluggish inflation.