Why oil prices fell to three-months low

27 July, AtoZForex – The remarkable oil price recovery experienced this year seems to have taken a halt after oil prices fell to three-month lows. Following a 20 percent rise in prices in quarter two of the year, the price rally is now under threat of a renewed crash after the commodity has been falling consistently for the last few weeks.

Why oil prices fell to three-months low

Analysts see another looming glut as the reason for why oil prices fell to three-months low. With supply-demand mismatches leading to a negative sentiment of the black gold. According to Scott Darling, JP Morgan’s Asia Pacific oil and gas head of research:

“It’s not just in the U.S. In Asia if you look at Chinese gasoline demand growth, it was 10 percent last year. This year, it’s tracking the mid-single digits,”

Geographical instability

The rig count and inventories condition in the US have also added its fair share to the market sentiment. U.S. rig count went up a tad quarter-on-quarter, while confidence over geopolitical risks in Libya has also improved. Hence, the country’s production may return to optimum levels soon. Other countries like Iran also threaten the global market with a resurgence of their pre-sanction production levels. Nigeria, which has been recently hit with militant attacks affecting its oil output levels may also return to maximum production capacity soon. All of which are weighing on the oil sentiment.

JP Morgan also said prices for Brent is likely to average $47 per barrel this year, while its forecast for next year is $57 a barrel. Also stating that prices are likely to remain range-bound for now. On aggregate, the bank forecasts global oil demand growth slightly under 1 million barrels a day for the year.

Crude oil outlook

Brent weekly chart Brent weekly chart

Fundamentally, prices look set to continue downward, with a potential free fall likely to come in the next few days. The commodity remains fragile and sensitive, which puts it on the brink of further collapse in case of any negative news affecting it. Technically, Brent looks set to dip further, with around 43.84 as the next reasonable support ahead.

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