Oil prices have continued their recent slide, with the price of Brent crude falling below US$50.
Brent, the international benchmark for crude prices, fell 4.4% overnight, settling on US$49.91 a barrel. It reached a session floor of US$49.81, its lowest price point since January.
Meanwhile, US crude didn’t fare much better. Prices fell by US$1.61 a barrel, down 2% to US$45.97. Observers expect both Brent and US crude to fall further in the coming months. At best, they’ll provide a stern test for their respective lows in March and January.
Prices are down 12% this year, resuming where they left off last year following a 48% decline.
Oil is down for the same reasons that are weighing down other commodities. Supply is high, while economic data from the world’s biggest economies is less than impressive.
Chinese manufacturing slumped to its lowest point in over two years in July. That added further evidence the Chinese economy is slowing quicker than officials indicate.
Meanwhile, the news from the US wasn’t much better. US consumer spending dropped to its slowest since February — largely put down to slowing demand for vehicles.
The longer-term trends affecting oil prices don’t look like receding anytime soon.
The jitters in China over a stock market collapse have weighed heavily on oil, even as global supply continues to expand. That caused US crude oil to experience it’s sharpest fall on the futures market since 2008.
Yet there’s no sign that OPEC nations are letting up on production, even as oil drops to its lowest point in six months. In fact, OPEC had a busy month in July — with its total output higher than it has been for months. That suggests the market share driven strategy will continue for the foreseeable future.
It’s no surprise then that investors are turning their back on oil.
Speculators and hedge funds are abandoning the commodity at an increasing rate. Their exposure to US crude fell to a 5-year low on the back of rising global supply. At the same time, major investors in Brent crude slashed holdings by the largest margin since September 2014.
With supply up, and demand falling, oil prices could dip further below US$50 a barrel in the coming months. All eyes will be on OPEC to provide investors with some respite. Don’t bet on it just yet.
Contributor, Markets and Money
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