Oil prices decline on oversupply worries

The global oil market is ‘severely oversupplied’ with gasoline meaning oil’s biggest consumers refineries will start cutting back next month says analysts

Oil prices decline on oversupply worries

Accompanying Brent crude's fall earlier on Tuesday to a two month low of $44.14 are renewed predictions that oil will dip into the $30s before hitting the $60 level at year end, and then $75 within a year.

An increase in the number of rigs coming online - meaning more production - has also dented prices. The decline in USA output has been key to balancing a market weighed by excess supply for two years.

West Texas Intermediate for September delivery dropped as much as 71 cents to $42.42 a barrel on the New York Mercantile Exchange, the lowest since April 20, and traded for $42.56. Concerns over demand for refined products continued to linger, especially in the USA where over the last few weeks, despite the fact that driving season is in full bloom, demand for gasoline had not risen as much as expected. "There's no real surge to it - call it the great moderation".

Goldman Sachs has called that crude recovery is over and price may once again drop lower. Analysts polled by S&P Global Platts forecast a decline of 2.6 million barrels for crude inventories.

Gasoline supplies stand 11.4 per cent above the year-ago level in the United States, according to Department of Energy. May data is due out on Friday. Government data show USA gasoline supplies are at the highest seasonal level in decades, which may spur refiners to shut sooner than usual for maintenance. "Production is down one million barrels from past year and we have to see if the increase in rigs is enough to have an impact". In the so-called shoulder season during the autumn, diesel usually drives petroleum demand. Brokers are mostly expecting demand for crude to remain limited.

Without a surge in demand, the market will be unable to use up the gasoline that refiners stockpiled ahead of a summer driving season that shaped up to be more lackluster than expected. When prices started to fall from their peaks it was first considered as a correction, but investors are getting anxious it is becoming a trend.

He went on to say that the near-term worries "are a bit overblown: if I look at product inventories, yeah, they're high, but they've been high for months".

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