Global oil price down amid glut and slow demand

Oil in London traded near $50 a barrel this week after reaching a six-month low amid speculation that Iranian supplies will exacerbate a global surplus as demand from the United States to China slows.

Brent futures gained 1%, paring a 5.2% fall last Monday, bringing prices below $50 for the first time since January. The Obama administration won support from Arab Gulf allies for its nuclear deal with Iran, which has pledged to boost production when sanctions end. US refineries, which turned a record amount of crude into petrol during July, typically slow down from August to October for maintenance. 

Oil is trading in a bear market as expanding supplies and signs of slower economic growth in China fuelled a rout in commodities from gold to copper. As forecast last week, US crude stockpiles have slid, but they’re still about 95-million barrels above the five-year seasonal average level.

“Downside momentum continues and there’s really, at this stage, no sign of release from the oversupply problem, which is what’s putting pressure on prices,” said Ric Spooner, a chief analyst at CMC Markets in Sydney. “Lifting of Iran oil sanctions is highly likely to be the major new source of supply.”

Brent for September settlement rose 42c to $49.94 a barrel on the London-based ICE Futures Europe exchange on Monday. The European benchmark crude traded at a premium of $4.34 to West Texas Intermediate, the US marker grade.

West Texas Intermediate’s prices have decreased more than 20% from this year’s high in June.

US Secretary of State John Kerry said on August 3 that foreign ministers from the Gulf Co-operation Council agreed that Iran’s accord with world powers, curbing its nuclear programme in return for easing sanctions, will contribute to regional security.

Iran can boost oil production by 500 000 barrels a day within a week of international curbs being lifted and, a month after that, by one million a day, the state-run Islamic Republic News Agency reported, citing Oil Minister Bijan Namdar Zanganeh. It pumped 2.85-million barrels a day last month, compared with 3.6-million at the end of 2011, according to Bloomberg.

China’s official purchasing managers’ index and a factory index fell in July, indicating that efforts to bolster the world’s second-largest economy have yet to fuel a recovery.

In the US, the biggest oil consumer globally, crude inventories had probably shrunk by 1.63-million barrels by July 31, according to the median estimate in a Bloomberg survey of eight analysts before an energy information administration report. Supplies dropped to 459.7-million in the prior week, the energy department’s statistical arm said.

The Bloomberg commodity index of 22 raw materials lost about 11% in July to hit the lowest since 2002. – © 2015 Bloomberg News

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