Even
with geopolitical tensions running high, the oil market has become more
bearishly positioned than it's been for several years, and prices could fall
another 10 percent or more.
Brent
crude, the international benchmark, fell through $100 for the first time in 16
months Monday, as Chinese import growth fell unexpectedly for a second month.
Besides softer demand from China, the developed world is using less oil in general
as a supply glut grows in the Atlantic basin.
As a
result, crude is being stored for future use, and for the first time in several
years, oil is traversing the globe on tankers, waiting for a market.
"There's
as much as 30 million barrels sitting on floating storage, and it's got to go
somewhere at some point. That has to resolve itself," said Eric Lee,
Citigroup energy analyst. Lee said his long-term forecast for Brent is $70 to
$90 per barrel, and it could be starting to head in that direction.
The
oil market of late summer is a far different picture from the market in June,
when traders bid up crude on expectations that Islamic extremists in Iraq could
disrupt supply. But that seems unlikely, with insurgents focused on areas north
of the key southern productions area of Iraq. Traders have also been monitoring
the situation in Ukraine, since Russia is a major energy supplier to Europe.
But
while those events have provided some support, they have not fired up prices,
as there has been no impact on supplies. The rising dollar has also put
downward pressure on oil prices in recent weeks.
West
Texas Intermediate is also under pressure, losing 63 cents Monday to $92.66 per
barrel, the lowest level since Jan. 14. Part of the reason supply is so high is
a big jump in U.S. oil production, up 1.3 million barrels from year-ago levels
in June. The U.S. in late August was producing 8.6 million barrels a day.
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