Oil futures slide with focus on U.S. oil supply

Crude-oil futures dropped Tuesday, giving up some of the prior day’s strong gains, as analysts said data on U.S. oil supply and China’s economy could cause more price volatility this week.

Oil-futures for delivery in November CLX5, -2.58%  fell $1.04, or 2.2%, to $45.92 a barrel on the New York Mercantile Exchange. November Brent crude on London’s ICE Futures exchange LCOX5, -1.64%  fell 76 cents, or 1.6%, to $48.16 a barrel.

U.S. oil prices had surged 4.5% on Monday amid signs that low prices are starting to impact drilling activity and curb the pace of oil production in the U.S. This week’s numbers will be closely watched for more signs of supply adjustments.

“The rough zigzag pattern of recent weeks is continuing,” said Commerzbank commodity analysts in a note Tuesday. U.S. crude supplies are still higher than usual, so “it will take time for them to fall back to normal levels despite the drop in U.S. production,” they added.

“We think $50 per barrel is too low an oil price for medium or long-term equilibrium,” Paul Horsnell, head of oil research at Standard Chartered, said in a report. He said at $50 a barrel, oil supply stops increasing in non-OPEC regions, U.S. shale output falls and investment in conventional oil production is cut heavily as the price level is simply not sustainable for oil producers.

“Further, $50 a barrel leads to sharp increases in demand even in a period of weak economic growth,” Horsnell said.

Investor confidence in global economic growth, and the subsequent impact on oil demand, has also weighed on market sentiment in recent weeks, forcing the U.S. Federal Reserve to keep its interest rates on hold.

However, the U.S. dollar DXY, +0.14% did strengthen in the last couple of days on hawkish remarks from some members of the U.S. Federal Reserve, putting some pressure on oil prices.

Chinese President Xi Jinping said in a written interview with The Wall Street Journal the government is preparing a full slate of economic reforms for the rest of the year. Oil markets, which have become highly sensitive to macroeconomic news from China, are keeping a close watch on Beijing’s plans. Asian equity markets were mostly higher Tuesday, even as European stocks SXXP, -2.46%  and U.S. stock futures slumped.

The Asian Development Bank Tuesday lowered its forecast for China’s annual economic growth this year to 6.8% as pressures on the economy increased, from a previous forecast of 7.2%. Separately, a Chinese think tank said yesterday the country is unlikely to deliver the 7% annual growth target set by the central government, and lowered its estimate to 6.9%.

Nymex reformulated gasoline blendstock for October RBV5, -0.65% — the benchmark gasoline contract — fell a penny, or 0.4%, to $1.40 a gallon.

source: marketwatch.com