Saturday, August 22, 2015

Oil Prices Fall Again as U.S., Asia Demand Looks Set to Weaken

Oil_Prices

Oil Prices Dropped in Asian Trading

Oil prices dropped again in early Asian trading recently as traders speculated lowering refinery consumption after the US summer while the weakening economies of Asia and the high global production showed concern on the oversupply. The US crude futures had been trading at $41.84 a barrel each at 0014 GMT, which was around 3 cents below their last settlement and not more than six years low touched earlier this week.

Brent futures had been at $48.61 per barrel, down by 13 cents though the same is still some way from their 2015 low of $45.19. Both crude oil benchmarks have more than halved in value from the last year. They had rallied earlier in the year though are now almost a third below their last year rise in May.

Data have conveyed that several speculators have taken on large bets on further likely falls lying ahead. The reason for the change being twofold, one is the weak demand in several countries due to dull economic growth together with surging US production. Beside this is the fact that the oil association OPEC is unwavering in not cutting production as a way to prop up the prices.

Speculating Rise in U.S, Stockpile

According to ANZ bank it was commented that the `fundamentals suggest downside risk still tends to remain in key markets, especially iron ore and crude oil, in the months ahead’, speculating a rise in U.S. stockpile in the forthcoming months as refiners reduce operations for the purpose of maintenance as the summer driving season tends to come to an end thereby reducing the demand for US crude.

A subsidiary of Fitch Ratings, BMI Research had stated that the market could have an overshot to the downside, hoping in a modest recovery in the prices towards the fourth quarter. BMI Research analyst had commented that `the downward move had been largely speculative driven by the Iranian nuclear accord, economic uncertainties surrounding China and bearish re positioning in the futures market’.

Several oil traders have been positioning themselves to earn profit from an additional drop in U.S. prices. With regards to betting on further outright falls, the traders have become aggressive in taking up put options, an option which tends to sell a contract once the price begins to fall to a certain level, at a price as low as $35 and probably $30 a barrel.

Long-Term Outlook Seems to Remain Bearish

One broker had informed that the amount of queries that they had recently received with regards to leveraging bets on further price falls, have been quite surprising. Underlining the bearish sentiment, money managers as well as hedge funds cut their net long holdings of Brent crude futures for a fourth straight week, according to exchange data shown recently.

Long-term outlook also seemed to remain bearish with BMI Research guessing `oil prices probably to remain fixed till 2018’. They had stated that `the return of Iranian oil to the market, coupled with strong project pipelines in North America, the Middle East, West Africa and Kazakhstan would see global supply growth exceed the growth in global consumption for the next two years’. It was forecasted by the firm, that Brent would average to $56 and $55 in 2016 and 2017 respectively with U.S. crude averaging $53 in both the years.

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