As support wanes, U.S. oil prices resume sprint lower
By Edward McAllister and Jessica Resnick-Ault
NEW YORK (Reuters) - A four-day drop in U.S. oil prices has shattered a month of relative stability and raised the specter of another sustained move lower as rocketing production and swelling inventories re-emerge as dominant market forces.
Hammered by oversupply, U.S. oil prices fell 60 percent from $107 a barrel in June to below $44 a barrel in January before rallying and trading in a range around $50 in February. Experts began to discuss whether oil had "bottomed out", or reached its low point.
But without any clear sign that oil output is slowing, and as winter fuel demand abates and inventory levels continue to rise every week, oil may be set for a push below $40 a barrel, experts said.
Prices have already dropped 15 percent in the past four sessions and fell below $43 a barrel on Monday, the lowest level since February 2009. Unlike the slump last year, which was led by the Brent benchmark in Europe, the recent fall appears to be driven by the U.S. market, where the situation could be more difficult to resolve given the depth of U.S. oversupply.
The price drop since last week shows how fast the oil market can turn and lends credence to analyst forecasts of another price dive. Citibank said last month that U.S. crude could fall as low as $20 a barrel before rebounding.
"We thought the market was being supported by a couple of false positives, and a couple of one-offs that we didn't think were sustainable into the second quarter," said Michael Cohen, head of energy markets research at Barclays in New York, who said that the end of a refinery workers' strike last week removed another bullish market factor for oil products.
Fading winter demand and sturdy supply from Iraq and Libya are keeping international markets awash with oil and keeping a lid on prices, market sources said.
"The market seems oversupplied, so I won't be surprised if it keeps going lower," an energy hedge fund manager said. "We are getting some supplies back from Iraq and Libya. Iran particularly is ready to dump more oil into the market once sanctions are off." Continued...