Oil glut trade on brink of a return; Brent crude below $40

An oil trade that only works when the market is glutted may be about to make a comeback. That’s bad news for producers withholding near-record amounts of crude in a coordinated bid to help prop up prices. Crude futures in London, on Tuesday, fell below $40 a barrel for the first time since June 25. Brent crude was trading at $39.73 per barrel, down 5.43 per cent at 7.47 pm IST.

The combination of a stalling Asian demand recovery, the end of the US summer driving season, and increased supply from the Opec+ alliance are signaling a bleak short-term outlook for oil prices. The global Brent crude benchmark is currently trading quite deeply in a bearish pattern known contango, where the most immediate prices are far below those for contracts for supply in later months. The discount has gotten so big that it appears to cover the nominal cost of hiring 1,200-ft long supertankers. In other words: Traders can buy cargoes now, stash them on ships, and sell them later at a profit.

Such a development would be viewed with concern by the likes of Saudi Arabia and Russia, the two nations who led the deepest global oil production cuts in history. In recent months, they have been carefully trying to boost supply to bring it slowly back toward normal. The contango implies that the market is so oversupplied that one of the industry’s most expensive forms of storage is becoming a viable way to hoard barrels — on paper at least.

Gold falls sharply

Gold prices fell sharply on Tuesday as a strong dollar outweighed lingering economic concerns and investors awaited policy cues from the European Central Bank.

Spot gold was down 0.55 per cent at $1,918.49 per ounce at 7.47 pm IST, after falling as much as 1 per cent to $1,907.61. In Mumbai, standard gold settled at ~50,870.