Daily Management Review

U.S. Crude Oil Market Tumbles Taking Asian Crude Prices With It


U.S. Crude Oil Market Tumbles Taking Asian Crude Prices With It
Fears of a global oversupply of crude oil following huge stockpiles and refinery shutdowns forced the price of US crude to its lowest in almost six-and-a-half years on Friday.

Friday’s fall was preceded by more than 3 percent on Thursday as reports of a rise in stocks of more than 1.3 million barrels in the week to August 11 at Cushing, Oklahoma, the delivery point for U.S. crude futures reached the market.

By Friday morning, there was a fall of 24 cents in the price of U.S. crude CLc1 which reached $41.99 a barrel. Earlier, the price had reached its lowest point since March 4, 2009 to touch $41.35 per barrel. While the front-month September Brent contract expires on Friday, the prices of Brent crude LCOc1 fell by 10 cents on Friday to reach $49.12 per barrel.

The refinery outage has reduced demands of crude in the Us and as a result the U.S. crude is much weaker than the North Sea benchmark.

Two thirds of the capacity of the largest of the US refineries, BP Plc’s 413,500-barrels-per-day (bpd) facility in Whiting, Indiana, has been shut down for at least a month and even more for repair works.

Criticizing the role of the U.S. crude oil contract, also known as West Texas Intermediate or WTI, Robin Bieber, director and technical analyst at London brokerage PVM Oil Associates said that it had become somewhat dislocated from Brent.

"The contracts are not all on the same technical page and this causes a lack of clarity, WTI could plunge but the rest hold steady," Bieber said.

Other analysts like Commerzbank’s Carsten Fritsch said that a slow fall in prices was expected but not an accelerated drop in prices.

"As long as (Whiting) refinery is out of service this will add to stocks in the U.S. which is WTI's main driver now," Carsten said.

Apart from the internal problems, the US crude is also facing problems with the lowering of commodity prices following the devaluation of the Chinese yuan. Goldman Sachs noted that a weaker Chinese yuan was putting downward pressure on all commodity markets which was an indication of a change in global macroeconomic conditions.

In a note to its clients, Goldman Sachs said: "we believe the net commodity market effects are bearish”.
Until the reduction in oil production, the prices of crude would continue to fall, according to analysts.

"The lowest crude prices in six years might not be enough to put the brakes on the U.S. supply growth. U.S. shale players are actively cutting costs and some players are profitable at less than $30 per barrel," ANZ Bank said.

In the Asian markets, the fall in the crude prices in the US resulted in a rapid fall in the crude prices.. The price of crude oil futures plunged to six and half year low following the news and data about crude stock pile up in the US.

Crude oil prices in the commodities market also remained close to the lowest level reached during the 2009 financial crisis. The tumbling crude prices in the US to a six and half year low were to be blamed for this.

(source:wwwtheguradian.com & www.reuters.com) 

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