The price of West Texas Intermediate crude settled a little higher on Tuesday for the first time in five sessions, providing a little glimmer of light in an otherwise dark horizon on the oil price front.
Hopes for a general recovery in oil prices are still floundering under the combined pressures of expectations that Iranian production will soon worsen the oversupply situation and concerns about the stock market crash in China as well as a drop in oil demand from the second biggest global oil consumer.
September crude (CLU5, -0.31%) dropped further to an intraday low under $47 on Tuesday although it picked up in later trading to settle at $47.98 per barrel on the NYMEX.
Meanwhile, Brent crude (LCOU%, -0.24%) lost 17 cents to end at $53.30 per barrel on the ICE Futures Exchange in London.
Tariq Zahir, managing member at Tyche Capital Advisors, said, “We have been down the last few days so a little short-covering rally is not surprising. Bear market rallies can be fast and furious.”
Several factors point to the oversupply situation remaining the same at best while the reality is that the glut in oil production might worsen going forward.
The political settlement that appears to be on track between Iran and the P5 + 1countries means that the oil producer, which boasts the fourth highest reserves globally, will soon be back in the market. Reports are that Iran has around 60 million barrels in storage for immediate sale once sanctions are lifted and the country's oil wells are poised for new production.
An ANZ report says that exports from the southern oil export terminal in Iraq have increased by 10% month-on-month to show record exports for July. This is another indication of the OPEC policies of pushing production up even further despite the current oversupply situation.
While oil investors were awaiting the latest American Petroleum Institute data out late on Tuesday and the U.S. Energy Information Administration figures on Wednesday, prices remained soft. Analysts at Platt had earlier forecast a weekly decline of 700,000 barrels for crude oil supplies.
Tariq Zahir said however that he would not be surprised if crude supplies actually show an increase and if they do “we could test lows set earlier this year by the end of the week.” West Texas Intermediate had fallen as low as $43 per barrel in March.
Richard Hasting, macro strategist at Global Hunter Securities said, “There is no incentive for producers to cut back globally, [capital expenditures] for next year are getting slashed. Even that is no assurance that production will contract enough to fix this. The next few months are quite unstable, or until external events get this sled off the ski slope.”
MT4 Chart: Oil