MW: Oil prices down with markets off to a shaky start for the week
Oil prices fell in Asian trade Monday, reversing some of the gains made late last week amid concerns the latest rally in the oil and commodities markets would be difficult to sustain.
Investors are bracing for another week of volatile trading, with a focus on China as well as the timing of a U.S. interest-rate increase. Oversupply concerns also remain persistent as seasonal summer demand for oil fades and oil refineries slow operations.
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On the New York Mercantile Exchange, light, sweet crude futures for delivery in October CLV5, -1.11% traded at $44.65 a barrel, down $0.58, or 1.3%, in the Globex electronic session. October Brent crude on London’s ICE Futures exchange LCOV5, -1.34% fell $0.79, or 1.6%, to $49.29 a barrel.
In highly volatile trading Nymex crude and Brent crude gained 11.8% and 10.1%, respectively last week. In the same week, oil prices had slipped to multiyear lows, but clawed back gains to rise 16%-17% over the final two trading sessions.
On Monday, oil took cues from a softer start by Asian markets, with the Shanghai Composite Index SHCOMP, -0.82% down over 1% after Beijing placed a 16 trillion yuan ($2.506 trillion) cap on local government debt over the weekend, the latest move to address a slowing economy. In addition, the Financial Times reported that Beijing will no longer make large-scale purchases of stocks to support the market.
“It is now widely accepted that China is in the midst of a major slowdown in both economic growth and energy demand,” price-reporting agency Platts said in a report, adding that the near-term outlook for China’s crude imports is slightly more optimistic than widely expected.
“We are still not out of the woods despite the hike in oil prices. Technical indicators still showing bearishness,” Phillip Futures analyst Daniel Ang said. He said he remains wary of a volatile week ahead, and with bearishness still in play, expects a price support at $44 and $48.50 for WTI and Brent crude, respectively.
In addition to concerns about the Chinese economy, the large surplus in the oil market is also preventing a sustained price recovery.
“Crude oil prices continue to reflect weak fundamentals,” Barclays analyst Miswin Mahesh said in a report. “New uncertainties on the horizon” have also been exposed in the past month, he said, including a slowdown in China’s economy, the resilience of U.S. shale-oil producers, the strengthening U.S. dollar and new Iranian oil supply.
Moreover, if global oil production doesn’t decline in line with slowing refinery operations, the surplus oil that goes into storage could pose a barrier to a Brent-price recovery to the $60 range, Mahesh said.
Nymex September diesel traded at $1.5545, 219 points lower. ICE gasoil for September changed hands at $475.00 a metric ton, down $2.50 from Friday’s settlement.
