Front month WTI traded as low as $39.84 today.
I mentioned yesterday that approaching the balance issue from the supply perspective had kept us on the right side of the trade for most of the decline but it's probably time to start digging into demand for whatever information we can glean.
First up, Reuters:
Oil ends down more than 2 percent as U.S. drilling points to glut
U.S. oil prices traded below $40 a barrel for the first time since the 2009 financial crisis on Friday, ending 2 percent lower on signs of U.S. oversupply and weak Chinese manufacturing and notching the longest weekly losing streak in almost three decades.
U.S. crude dipped below the $40 threshold following weekly data that showed U.S. energy firms added two oil drilling rigs last week, the fifth increase in a row. The rise in the number of rigs emerging after a second quarter lull in prices is adding to concerns U.S. shale production is proving slow to respond to falling prices, prolonging a global glut. [RIG/U]
"Everyone is still looking at it saying 'Wow, you still don't have production coming down,'" said Tariq Zahir, founder at Tyche Capital in Laurel Hollow, New York.
Energy markets slid early in the day as world stock and currency markets joined an extended rout across raw materials this week, a slump accelerated on Friday by data showing activity in China's factory sector, a huge user of many commodities, shrank at its fastest pace in almost 6-1/2 years in August.
With deepening gloom over demand growth from the world's second-biggest oil user, and expectations for a significant build-up in surplus oil stocks this autumn, dealers said most oil traders were unwilling to fight the tide...MORE
And from ZeroHedge:
Is The Oil Crash A Result Of Excess Supply Or Plunging Demand: The Unpleasant Answer In One Chart
One of the most vocal discussions in the past year has been whether the collapse, subsequent rebound, and recent relapse in the price of oil is due to surging supply as Saudi Arabia pumps out month after month of record production to bankrupt as many shale companies before its reserves are depleted, or tumbling demand as a result of a global economic slowdown. Naturally, the bulls have been pounding the table on the former, because if it is the later it suggests the global economy is in far worse shape than anyone but those long the 10Year have imagined.
Courtesy of the following chart by BofA, we have the answer: while for the most part of 2015, the move in the price of oil was a combination of both supply and demand, the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy.
Here is BofA:
Retreating global equities, bond yields and DM breakevens confirm that EM has company. Much as in late 2014, global markets are going through a significant global growth scare. To illustrate this, we update our oil price decomposition exercise, breaking down changes in crude prices into supply and demand drivers (The disinflation red-herring).
Chart 6 shows that, in early July, the drop in oil prices seems to have reflected primarily abundant supply (related, for example, to the Iran deal). Over the past month, however, falling oil prices have all but reflected weak demand.
BofA's conclusion:
The global outlook has indeed worsened...
...MORE
