Oversupply Could Drive Oil 10% Down

Even with geopolitical tensions running high, the oil market has become more bearishly positioned than it’s been for several years, and prices could fall another 10 percent or more.
Brent crude, the international benchmark, fell through $100 for the first time in 16 months Monday, as Chinese import growth fell unexpectedly for a second month. Besides softer demand from China, the developed world is using less oil in general as a supply glut grows in the Atlantic basin.

As a result, crude is being stored for future use, and for the first time in several years, oil is traversing the globe on tankers, waiting for a market.

“There’s as much as 30 million barrels sitting on floating storage, and it’s got to go somewhere at some point. That has to resolve itself,” said Eric Lee, Citigroup energy analyst. Lee said his long-term forecast for Brent is $70 to $90 per barrel, and it could be starting to head in that direction.

The oil market of late summer is a far different picture from the market in June, when traders bid up crude on expectations that Islamic extremists in Iraq could disrupt supply. But that seems unlikely, with insurgents focused on areas north of the key southern productions area of Iraq. Traders have also been monitoring the situation in Ukraine, since Russia is a major energy supplier to Europe.

But while those events have provided some support, they have not fired up prices, as there has been no impact on supplies. The rising dollar has also put downward pressure on oil prices in recent weeks.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza