Oil prices ‘edge up’ in Asia but supply glut woes return

SINGAPORE, July 26, (AFP): Oil prices edged up slightly in Asia on Tuesday after tumbling more than two percent the day before, while a weaker dollar also provided support, although fears about a global supply glut are returning to the fore.

After topping $50 a barrel early last month on the back of output disruptions, the cost of crude has tumbled about 15 percent in recent weeks as the crucial US holiday driving season comes to an end and global demand remains weak.

Traders have been spooked since last week when the US Energy Information Administration said US inventories had fallen less than expected, and that petrol supplies had risen, despite it being peak season for demand in the country.

An increase in the number of rigs coming online — meaning more production — has also dented prices.

At about 06:00 GMT Tuesday, US benchmark West Texas Intermediate was up eight cents to $43.21 while Brent North Sea was up 15 cents at $44.87.

Both main contracts tumbled Monday with crude touching a three-month low while Brent touched its weakest level since May.

“You can’t ignore the size of the inventory overhang,” Evan Lucas, a market strategist at IG Ltd in Melbourne, told Bloomberg News.

“The fundamentals don’t support a move up through $55 to $60 a barrel, but we’re not seeing a capitulation like we did at the start of the year.”

The black gold plunged to near 13-year lows below $28 in February, as world markets were crippled by worries over China’s economy, weak demand, a global growth slowdown and a supply glut.

Oil futures were down again on Monday as investor concerns about a supply glut showed no sign of letting up.

West Texas Intermediate benchmark crude for September delivery lost $1.06 on the New York Mercantile Exchange, sinking to $43.13, its lowest level in three months.

In London, North Sea Brent crude for September hit its lowest price since May, sinking 97 cents to $44.72 on the Intercontinental Exchange.

“You really have a hangover from last week’s EIA storage report,” said Bob Yawger of Mizuho Securities, referring to weekly numbers released by the US Energy Information Administration.

The EIA reported last week that crude inventory had fallen by a less-than-expected 2.3 million barrels, and that gasoline supplies had risen during the US driving season, a time of peak demand.

“The gasoline numbers are so overwhelming now it’s hard to pin a bullish scenario as far as storage is concerned.”

Analysts say the strong dollar is also putting pressure on demand for oil futures as this effectively raises prices for holders of other currencies.