Oil prices this week fell below $43 a barrel for the first time since April, and one analyst says crude has more losses ahead.
“There was never any fundamental reason why oil prices should have doubled between January and June this year,” says Paul Hodges, chairman of chemical industry adviser International eChem
. “There were no physical shortages of product, or long-term outages at key producers.”
West Texas Intermediate crude plummeted from a high of about $120 a barrel in June 2014 to a 13-year low of about $28.50 in February. The collapse was attributed to greater supplies from Saudi Arabia and other countries in the Organization of the Petroleum Exporting Countries cartel, and to slowing demand from China.
Oil rose about 70 percent from the February low before stalling out at about $51.50 a barrel last month. The price has fallen to about $43 a barrel currently as U.S. stockpiles set seasonal records of 519.5 million barrels.
Loose monetary policies from the world’s central banks have distorted oil prices, and the value of the U.S. dollar has been integral to crude’s moves, Hodges says.
“Unless the U.S. dollar starts to fall sharply again, it seems highly likely that prices will now revisit the $30-a-barrel level seen earlier this year,” Hodges says. “Given the immense supply glut that has now developed, logic would suggest they will need to go much lower before the currently supply overhang starts to rebalance.”
In the short term, crude may get support because exports of Nigeria's largest crude oil stream, Qua Iboe, will remain under force majeure for at least one month as operator Exxon Mobil Corp fixes a pipeline, Reuters reported, citing unnamed sources
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