The latest data indicating a rise in the number of active oil rigs in the U.S. resulted in the biggest fall on a percentage basis in the oil price since 2008.
Oil service firm Baker Hughes reported on Friday, shortly before settlement, that the number of U.S. oil rigs had increased by 5 to a total of 664. The inference is that oil producers are not concerned about reducing production in the face of a global oversupply of oil.
West Texas Intermediate crude for September delivery (CLU5, -1.17%) settled at $47.12 per barrel to lose 2.9% or $1.40 on the day on NYMEX. The decline for the week was 2.5% while the monthly fall in price was 21%, according to FactSet data. Anything above 20% is considered as bear market territory.
On the international benchmark for oil on the ICE Futures Exchange (LCOU5, -1.30%), September Brent crude oil dropped by $1.10 or 2.1% to settle at $52.21 per barrel. The commodity shed about 5% while it has lost more than 18% during the whole of July.
High global levels of oil production in the face of lower demand from China, the world's second biggest oil consumer, have played havoc with the price calculations based on the ratio of supply versus demand pushing prices down.
Adding fuel to the oversupply situation is the impending return of Iran as a major player in international oil markets which will aggravate the oil glut even further.
Meanwhile, the strong dollar (USD) has played its part in depressing the price even further as a consequence of the inverse ratio between the U.S. currency and dollar denominated commodity prices. The dollar fell slightly against the euro on Friday after better than expected European data showed that the EU had not slipped into deflation during July.
On the supply side, producers have opted to implement cost cutting measures while maintaining production at currently high levels in efforts to maintain profitability rather than in reducing production which would put upward pressure on prices.
Despite the negative economic data from China, oil demand has remained steady although this might be a result of opportunistic buyers taking advantage of the low prices and stockpiling oil. Indian demand has remained strong as the government has embarked on a policy of building a long term strategic reserve.