26 August 2015 – Crude futures held in a narrow band on Wednesday not far off 6.5-year lows after China’s central bank moved to support the country’s stumbling economy, while concerns about a supply glut capped gains.
Asian stocks fell on Wednesday, and the US dollar has broadly lost steam as traders unwound massive carry trade bets in recent years based on higher yielding assets and instead flocked to safe-haven currencies such as the euro and yen.
Brent was trading down 3 cents at $43.18 a barrel early on Wednesday after it settled up 52 cents at $43.21 a barrel on Tuesday. US October crude was also down 6 cents at $39.25 a barrel, after ending $1.07 higher at $39.31 previously.
ANZ said China’s rate cuts had calmed commodity markets, but they remained cautious and gains would be limited.
“The displacement of high cost supply from the United States is taking much longer than expected, and it’s likely to keep the market substantially oversupplied in the short term,” it said.
Daniel Ang, an investment analyst at Phillip Futures, said China’s rate cut prevented oil prices from finding a new low. “However, with a new day, new challenges await. We would likely be seeing US crude inventories pushing prices down today due to slowing refinery activities.”
US crude stocks fell by 7.3 million barrels last week to 449.3 million, compared with analysts’ expectations for a rise of 1 million barrels as refinery runs rose, data from the American Petroleum Institute showed on Tuesday. Energy Information Administration data is due on Wednesday.
“While the rate of global oil stock build is still set to decline, stocks will build for longer than initially anticipated,” BNP Paribas said late on Tuesday.
“As such, any price improvement will most likely take place from a lower starting point and the pace of any price improvement is likely to be slower than previously assumed.”
Macquarie noted a slowdown in auto sales which impact many commodities including oil in China and other emerging markets such as Russia, Indonesia, Brazil and Thailand.
“Industrial demand has struggled in many key emerging markets – this is perhaps best evidenced by auto sales, where the trend has continued to slide into mid-2015,” the bank said.
In China, car sales have fallen for four straight months, with the steepest month so far in July, at over 7%.
Iran will ramp up crude production and reclaim its lost share of exports shortly after international sanctions on the Opec member are lifted, Iran’s oil minister Bijan Zanganeh said on Tuesday, while Nigeria is also boosting exports.
With oil falling further, support is growing among non-Gulf members for action and even some Gulf officials are concerned about the latest drop in prices. Policymakers in top Opec producer Saudi Arabia have remained publicly silent.