The world's benchmark oil price fell below $50 a barrel Monday
for the first time in six months as a sluggish global economy and
rampant oil boom keep crude markets crashing.
Monday's selloff comes after oil spent July plunging into a bear
market. Record production in the U.S. has led to an international
competition to produce even more, cut prices and fight for
customers around the world. The past week brought signs that
production is still going strong, dashing hopes that low prices may
force producers to slow down.
There were signs Monday that the global economy may not ramp up
enough to absorb all the oil. Chinese manufacturing activity fell
to a two-year low, according to data released Monday, clouding the
demand outlook for the world's second-biggest oil consumer. Brazil,
India, and Russia also slowed, further signs of limited demand
growth around the world, wrote Tim Evans, analyst at Citi Futures
Perspective in New York, in a note.
"The prospects of a second half-year price rebound have
evaporated and there is a clear and present danger of prices
revisiting the previous lows of the year," said David Hufton of oil
brokerage PVM.
Brent, the global benchmark, recently traded down 4.5% to $49.85
a barrel on ICE Futures Europe. It is within $4 of the six-year low
settlement price it hit in January.
Light, sweet crude for September delivery recently fell 3.8% for
the day to $45.31 a barrel on the New York Mercantile Exchange. It
is within $2 of the six-year low settlement price it hit in
March.
In China, the Caixin manufacturing purchasing managers index, a
gauge of nationwide manufacturing activity, fell to 47.8 in July
from 49.4 in June, the lowest level of the index since 2013. A
level under 50 indicates a contraction in activity.
"The main oil demand growth engine of the world [is China, and
it] may not be leading the global oil rebalancing effort anytime
soon," wrote Dominick Chirichella, analyst at the Energy Management
Institute, in a note. "Supply is likely to remain robust for the
foreseeable future, prolonging the long awaited rebalancing of the
global oil market."
Oil entered a bear market last month with the U.S. benchmark
shedding 21% of its value and Brent losing 18%. Persistently high
U.S. output and record production from other major suppliers,
combined with a repeated effort from U.S. producers to get more
drill rigs back to work, has dashed optimism that the market could
rebalance soon.
U.S. government data on Friday suggested that the country's oil
production peaked in March, but the U.S. oil rig count, which is a
rough proxy for activity in the industry, rose last week for the
third time in the last four weeks, according to Baker Hughes Inc.
The count rose by five rigs to 664, on top of a 20-rig increase in
the previous week.
The data suggests that "U.S. producers are coming to the point
where they start considering growth, at least at the margin," said
analysts at Deutsche Bank.
Looking beyond the U.S., many suppliers around the globe also
seem likely to expand production.
Barclays said a group of 101 oil companies that it tracks, which
cover around 40% of global oil production, show no slowdown in the
pace of production growth in 2015. After growing by one million
barrels a day in 2014, the companies plan to accelerate output
growth to 1.4 million barrels a day this year and maintain that
level into 2016.
Gasoline futures recently fell 4.6% to $1.6912 a gallon. Diesel
futures fell 2.7% to $1.5461 a gallon.
Biman Mukherji contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com and Timothy
Puko at tim.puko@wsj.com
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