US oil falls towards $40 on global glut

Leading members of the Organization of Petroleum Exporting Countries are maintaining output, while Citigroup Inc. predicts crude may slide to as low as $32/bbl, a level last seen during the world financial crisis.

“While this is a clear sign that low prices will lead to less production, it was not enough to convince people yesterday”, Commerzbank senior oil analyst Carsten Fritsch said.

“Oil balances point to further oversupply throughout 2015 begging the question how low can oil go”, it said in a market commentary, adding that hitting the 2008 low of $32.40 a barrel “is a conceivable reality”.

The string of losses for WTI crude has sparked increasing comparisons with the major bear market in 1986, said Tim Evans, an energy analyst at Citi Futures, in a note. The group’s latest monthly report showed that its output surged to a three-year high in July, boosted by Saudi Arabia, Iraq, Angola, and Iran.

“The report is bearish, with the focus squarely on crude oil and the large increase in overall inventories, due mostly to a surge in imports”, said John Kilduff, partner at Again Capital LLC in New York. China, however, has infused cash into the market after devaluing its currency in an effort to ensure stable growth.

Meanwhile, the US Department of Energy said its oil stockpiles have rose to 2.6 million barrels in the week ending August 14. It was the lowest settlement since March 2, 2009.

US benchmark West Texas Intermediate for delivery in September dropped $1.82 to $40.80 a barrel on the New York Mercantile Exchange.

Brent oil (LCOc1) ended $1.16, or 2.5 percent, lower at $45.46 a barrel.

The drop in oil price is impacting energy companies’ performance as they invested heavily in drilling operations for the past few years.

A Japanese contraction, coupled with a series of crashes on the Chinese stock market sparked concerns some of the expected demand in oil may subside. The September contract expired Thursday after rising 34 cents to $41.14.

One of the reasons for the strength of the Indian rupee is the falling price of oil which has brought down the current account deficit, he said.

On the Intercontinental Exchange (ICE), Brent crude for October delivery wavered between $46.83 and $49.10 a barrel, before closing at 47.10, down 1.71 or 3.50% on the day.

The basket of 12 crude oils of the Organisation of Petroleum Exporting Countries (OPEC) closed at $44.13 a barrel on Thursday, compared to $45.39 on Wednesday. The figure is a long way off its production levels prior to sanctions.