Daily Management Review

US Crude Prices Touch $40 Mark, Weekly Losses Longest in 29 Years


US Crude Prices Touch $40 Mark, Weekly Losses Longest in 29 Years
For the first time in six years, the crude oil prices in the US fell below the $40 mark on Friday.  The weekly losing streak for crude oil in the US was also the longest in the last 29 years as analysts still predict a period of average prices for crude.

The fall in prices in crude oil in the US is primarily due to increased output from the US drilling rigs and the drop in Chinese manufacturing.

Weekly oil data in the US showed that energy firms added two more oil drilling rigs last week that pushed the oil prices below the $40-pivot mark. This addition was the fifth weekly increase in a row. Analysts say that the U.S. shale production has proven to be slow to respond to falling prices even as new rigs continue to be added after a second quarter lull in prices.

However analysts feel that the historic fall in crude oil prices is linked to the global fall in financial markets after private surveys showed that in China's factory sector shrank at its fastest pace in almost 6-1/2 years in August. Last week, the sudden devaluation of the Chinese currency had shaken up world markets and caused a sharp fall in the consumer market including a gradual fall in the oil prices worldwide.

Apart from being the second largest economy of the world, China is also the second largest consumer of oil and oil products. Therefore the fall in oil prices are linked to the slowing down of the Chinese economy and decrease in demand for oil.  

“The market is stuck in a relentless downtrend,” said Robin Bieber, a director at London brokerage PVM Oil Associates. “The trend is down - stick with it,” he added.

The price of front-month U.S crude oil in the US has fallen 33 percent over eight consecutive weeks of losses. This is the longest of losing streak for the crude prices in the US since 1986.

On the other hand, the Gulf members of the OPEC countries said that the latest drop in oil prices which had not been expected and expressed their concern over the falling prices, reported Reuters  

After an 18 percent drop in July, the Brent oil LCOc1 is trading near $46 a barrel which is close to its 2015 low. This fall in the prices is related to the abundant supplies and concern about the health of the Chinese economy.

Some of the OPEC members however said, on condition of anonymity, that China has been making purchase of crude to stock up and the member are hopeful that next year the demand would get stronger and would touch the $60 mark.

“There is a concern about the health of the Chinese economy, but as numbers have shown the need to import oil is increasing,” an OPEC delegate from a Gulf oil producer told Reuters.

The OPEC countries however are of the opinion that crude prices would be volatile for a while bit are confident of a recovery.

Global prices of crude have nearly halved since June last year.

(Source: www.reuters.com)