US crude flirts with close of under $40

Brent and US crude both fell to six and half year lows and Carsten Fritsch, oil analyst at Commerzbank, speaking at Reuters” Global Oil Forum, said the collapse was “not about oil market fundamentals’ but about China.

China’s slowdown is expected to pull down other regional economies, affecting energy and raw material consumption.

Despite all apprehensions, the OPEC refuses to cut supplies to ease the oversupplied markets. The number of active oil rigs in the US rose for the seventh time in eight weeks, Baker Hughes data showed on Friday.

US light crude was down $1.15, or 2.8%, to $39.30 a barrel after hitting a low of $39.00.

Two key benchmarks, Britain’s Brent and the US Western Texas Intermediate, were trading lower at $43.13 per barrel and $38.67 per barrel, respectively, at mid-session trade on Tuesday. That’s the lowest since $42.59 marked in March of 2009.

The fall in oil followed an 8.5 percent decline in the Shanghai Composite Index on Monday.

The index is a measure of returns that takes into account the loss or gain from holding futures contracts as well as the performance of the underlying commodities.

Yet following the spike in their value, open interest in their trading started to fall late last week, and while some traders said this could imply that short-sellers are closing positions and trigger a short-lived price rise, technical indicators remain bearish.

“We believe that the lows of $32.40 and $36.20 for WTI and Brent could be a floor and would think that prices should hold there”, Ang added.

Chinese stock markets suffered their biggest one-day drop since the financial crisis, stirring huge sell-offs in global equities and commodities, with more than 400 billion euros ($465 billion) wiped off Europe’s FTSEurofirst 300 share index.

Iran was OPEC’s second-largest producer before worldwide penalties over its nuclear program began in mid-2012.

“Heading into September, deep uncertainties surround the global oil markets, including the strength of China’s crude demand, the resilience of US shale producers and the depth and pace of the seasonal downswing in global refinery throughput”, said BMI Research, part of the Fitch ratings agency. That resulted in a provide glut that has punished oil costs: the worth of U.S. crude has fallen about 60 % during the last yr.

In the graph below, you can see the interdependent relationship between crude oil rigs and crude oil prices. That’s the highest level since May 1.