US West Texas Intermediate (WTI) plunged as low as $39.42 per barrel on Wednesday – its lowest level since April. The North Sea benchmark Brent crude fell below $42 per barrel in early trading before stabilizing above the mark in the afternoon.
WTI futures fell sharply after the June peak “as traders shrug off expectations of increasing global fuel demand in the coming year and declining North American production levels, while they focus on near glut levels of supply and the end of unplanned supply disruptions (Nigeria, Libya and Canada) of the past couple of months,” Tradition Energy experts commented Monday as quoted by Market Watch.
Concerns about oversupply were heated by a Reuters’ monthly survey which revealed the Organization of the Petroleum Exporting Countries (OPEC) hit the highest recent production level in July.
Crude prices reached highs above $52 per barrel in June as oil supplies contracted due to disruptions in Canada, Nigeria and Libya as well as the faltering economy of OPEC member Venezuela. The short-term recovery faded as soon as higher prices pushed more output of crude and refined products.
Riyadh has cut oil prices to Asia by $1.60 per barrel, the most in 10 months, signaling mounting competition with fellow OPEC member Iran. Saudi Arabia is ramping up exports to regain market share.
Fuel stockpiles are brimming with global refineries producing huge volumes of petrol, diesel and jet fuel. OPEC members are currently pumping near record high levels with Saudi Arabia cutting prices in Asia due to strong competition from Iran over market share.
With a petrol glut hedge funds and traders have cooled towards crude and refined products in the last couple of months.
“With the market continuously focusing on oversupply, this bearish trend seems hard to change in the near term,” said Hans van Cleef, senior energy economist at ABN AMRO Bank as cited by Reuters.
Other analysts expect the oil market to recover later this year or next year.
Crude prices might take an upward trend in the fourth quarter as refinery maintenance winds down and fuel demand picks up. “Supply is going down, demand is still going up, those lines are going to cross,” Seth Kleinman, London-based European head of energy strategy at Citigroup, told Bloomberg.
The crude market may rebound to $57 per barrel in 2017, according to a Bloomberg survey of 20 analysts. Wall Street experts say WTI will fluctuate at $49.85 per barrel in the fourth quarter while Brent will be $52.