Oil enters bear market, mauled by supply glut

AFP - Chronic oversupply sent oil prices slumping this week into a so-called bear market, losing 20 percent from recent June peaks above $50.

In tumultuous trade on Wednesday, US benchmark West Texas Intermediate (WTI) struck $39.19 which was the lowest level since April 18.

And on Tuesday, Europe’s main contract Brent North Sea crude slid to $41.51 -- which was also a trough last reached on that same day.
Oil industry experts argue that the market got caught up in forecasts that supply and demand would shift into balance in 2016.

The International Energy Agency had forecast in April that oil was expected to almost balance out in the second half of the year.
“Crude prices have re-entered bear market territory,” said analysts at London-based consultancy Energy Aspects in a research note.
 

Many disappointed
“The problem has been that the market priced in a full rebalancing too quickly and discounted the scale of the inventory overhang, which has left many disappointed.”

The market had nosedived from above $100 in mid-2014 to 13-year lows of around $27 in February, plagued by the supply glut, but have since rebounded somewhat.
That collapse was triggered by a glut that was worsened by rising unconventional oil production, mainly from booming US shale crude, alongside the OPEC cartel’s reluctance to cut output.

This week, meanwhile, the US government’s Department of Energy (DoE) revealed that crude reserves rebounded by 1.41 million barrels in the week ended July 29. 

That confounded analysts’ forecasts for a drop of 1.75 million barrels, and left total stockpiles at 522.5 million. That was 14.8 percent more than was recorded at the same point last year and marked the highest seasonal level in decades.

Data showing an increase in inventories tends to heighten worries about oversupply and push the market lower. However, prices rose over Wednesday and Thursday on signs of rebounding demand for motor fuel amid the peak-demand driving season, when many Americans hit the road for vacations. “The DoE inventory data (provided) further evidence of a supply overhang returning to the market,” XTB analyst David Cheetham told AFP, adding gasoline demand was nevertheless weak.

“Supply disruptions from the Canadian wildfires and the geopolitical situation in Libya have failed to manifest themselves to the degree that they were feared. “When taken alongside disappointing demand from the US for gasoline in the driving season, this demonstrates an altogether less supportive fundamental outlook for oil than just a few months ago.”

Average US daily domestic crude production was meanwhile down 55,000 barrels at 8.5 million. 
Later Friday, investors will be watching the release of US July jobs data, which will give a fresh look at the world’s top economy and oil consumer.

In trading yesterday at 1045 GMT, WTI for September delivery was down 42 cents at $41.51 a barrel compared with the close on Thursday.

Minister clarifies

Minister of Development Strategies & International Trade Malik Samarawickrama referring to the article titled “Govt. to go whole hog in privatizing all public enterprises” that was published on August 4 says the headline is totally misleading and at no stage he mentioned that both non-strategic and strategic enterprises will be privatized.  

“In fact, during the panel discussion, I specifically mentioned that the government is looking at public-private partnerships for non-strategic SOEs, including some profit-making enterprises,” he added.