Oil fell amid a growing number of predictions that prices may slide toward $40 a barrel as consumption falters and supply disruptions end.
Futures dropped as much as 1.4 percent in New York. Analysts from BNP Paribas SA to JBC Energy GmbH warned prices may sink toward $40, due in part to seasonal demand weakness. Data this week showed U.S. gasoline inventories increased and consumption slowed even during the Independence Day holiday, usually a period of peak use. China provided some support, reporting economic data that beat estimates as the country processed a record amount of crude.
“The oil market has increasingly been stuck in the tug of war between short-term negative drivers such as renewed increase in inventories and the positive long-term outlook where higher prices will be required,” Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank A/S, said by e-mail. “The short term risk seems increasingly skewed to the downside.”
Oil has traded between about $44 and $51 a barrel in the past month after almost doubling since February amid a spate of supply disruptions. While there’s still a consensus that the worst of the oil glut that sent prices to a 12-year low is over, the International Energy Agency cautioned this week that “the road ahead is far from smooth.”
West Texas Intermediate crude for August delivery was at $45.39 a barrel on the New York Mercantile Exchange, down 29 cents, or 0.6 percent, at 11:43 a.m. London time. The grade rose 93 cents to settle at $45.68 on Thursday. Total volume traded was about 11 percent below the 100-day average.
Brent for September settlement lost 27 cents to $47.10 a barrel on the London-based ICE Futures Europe exchange. The contract increased $1.11 to $47.37 on Thursday. The global benchmark crude traded at an 96-cent premium to WTI for September delivery.
Crude fundamentals are weaker than many realize, according to Julius Walker, senior consultant at JBC Energy in Vienna.
U.S. inventories are brimming after two years of surplus production and demand for gasoline — the key driver of prices in summer — is proving to be disappointing. Stockpiles of the fuel rose 1.21 million barrels last week and refiners reduced operating rates by 0.2 percentage points to 92.3 percent of capacity, according to the Energy Information Administration.
To read about how refiners inadvertently created a gasoline surplus, click here.
China processed a record amount of crude on a daily basis in the first half of 2016 as privately held plants boosted operations after getting import licenses. The country’s domestic oil production dropped 4.6 percent to 101.59 million metric tons in the first six months of the year, the lowest for that period since 2012, according to data from the National Bureau of Statistics on Friday.
The world’s second-biggest economy’s gross domestic product rose 6.7 percent in the second quarter from a year earlier, compared with 6.6 percent seen by economists Bloomberg surveyed.
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