The global oversupply of oil accompanied by growing uncertainty with regard to an economic upturn on world markets sent oil prices plummeting on Monday with the global crude benchmark dropping through the $50 resistance level for the first time since January.
Brent crude on London’s ICE Futures (LCOU5, +0.32%) fell by 5.2% or $2.69 to settle at $49.52 per barrel while on NYMEX, while the U.S. benchmark West Texas Intermediate crude also dropped dramatically. WTI crude for September delivery (CLU5, +0.82%) fell by 4.1% or $1.95 to settle at $45.18 per barrel, the lowest level for a most-active contract seen since 19 March.
The oil price is in many respects being buffeted by a perfect storm of lower demand, increased production which is set to be worsened once Iran re-enters the oil market and a muscular U.S. dollar (USD).
Robert Yawger, director of energy futures at Mizuho Securities, commented that oil slumped amid a confluence of negative factors, while there was no apparent individual catalyst for the falling prices.
Yawger commented further that adding to the gloom were last week’s pessimistic assessments of the oil market prospects from Exxon Mobil (XOM, - 1.45%) and Chevron (CVX, -3.25%), accompanied by a rise in the number of U.S. oil rigs.
Meanwhile, Kash Kamal, senior research analyst at Sucden Financial, said in a note that investors “are still feeling the hangover of last week’s less than impressive macro data as both crude-oil benchmarks display a continuation of the recent bearish price moves.”
Addressing the recent nuclear agreement, Iranian Oil Minister, Bijan Namdar Zanganeh said the country could resume oil production of 500,000 barrels per day within one week of the lifting of sanctions. According to the state-run Islamic Republic News Agency (IRNA), he added that sanctions should be lifted by late November. Zanganeh added, “Our lost share of the market, which was about 1 million barrels a day, will manifest itself.”
IRNA also reports that Zanganeh said that even if crude oil prices fall further, Iran's government revenue from oil will stay the same because exports are due to double.
Additional concerns with regard to oil demand from China come from the latest Caixin manufacturing purchasing manager’s index which fell to a two year low of 47.8 in July after a disappointing 49.4 in June. An index figure over 50 indicates economic growth while a reading less than 50 means that the economy is in fact contracting.
Morgan Stanley said in a report that oil demand is presently near peak seasonal levels and will fall in the second half of the year. They also commented that supply pressure would increase in 2016 as the sanctions on Iran might be lifted.
MT4 Chart: Oil