Oil prices were treading water in London on Wednesday, ahead of key data on US crude supplies that is refocusing traders away from worries over China and back to the fundamental oversupply concerns that have been driving crude lower.
Later Wednesday, the Energy Information Administration will release data on US crude stockpiles that many analysts say will confirm a decline in crude held. Late Tuesday, the American Petroleum Institute reported an unexpected 7.3-million-barrel drop in weekly US stocks.
High levels of oil output from the US and the Organization of the Petroleum Exporting Countries have hammered investor sentiment in recent weeks. In July, oil prices slid into a bear market and are now off about 25 per cent this year-to-date.
On Wednesday, Brent crude, the global benchmark, was trading down 0.3 per cent at $US43.32 a barrel on London's ICE Futures exchange at 0756 GMT. Prices pulled back slightly, after ending a four-day losing streak on Tuesday. On the New York Mercantile Exchange, WTI was down 0.2 per cent at $US39.4 a barrel, remaining beneath the psychologically important $US40 level.
"Fundamentals at some point kick in...and the market realises that there is still a lot of oil available," Marex Spectron head of research Georgi Slavov said.
In recent sessions, concerns over the Chinese economy have had a knock-on effect in oil markets, with steep falls on Monday and a rebound the following day after the People's Bank of China cut interest rates and reduced the bank reserve requirement ratio. China is the world's second-largest consumer of oil, after the US
"All boats rise on the same tide," said Gareth Lewis-Davies, an oil strategist at BNP Paribas. "The moves up that we saw yesterday are tied closely to China."
The broader supply and demand picture, however, has now returned to the fore for market participants, and analysts' notes on Wednesday discussed how much oil was set to flow into tanks around the world.
"The main question...that many analysts and traders are battling with has to do with [oil] stock movements for the rest of the year and whether or not we are really at risk of hitting tank tops for crude," said JBC Energy GmbH in a report. The Vienna-based research house concludes that the answer is no, given what it says will be a seasonally higher crude demand and a lower rig count in the US
Still, others are less sure. Underscoring the risks to supply, Iran and Nigeria said on Tuesday that they will ramp up production, regardless of the latest oil price drop, to improve and maintain market share.
"It makes sense for those with the lowest margin costs to fight for market share," said Michael Poulsen, an oil risk manager at Global Risk Management.
The benchmark gasoline contract, Nymex reformulated gasoline blendstock for September, was down 1.4 per cent at $US1.29 a gallon.
