Here’s the key factor pushing oil prices to $35 a barrel
After enjoying a stellar run-up, crude futures are headed south again, treading into bear-market territory. However, the fundamentals of supply and demand may not be the key reason behind the recent bout of weakness in crude futures.
U.S. benchmark oil, West Texas Intermediate trading on the New York Mercantile Exchange CLU6, -0.95% has lost nearly 15% of its value so far in July, as of Thursday.
Back on June 8, WTI had nearly doubled its value closing at a 2016 high of $51.23 a barrel after reaching a low of $26.21 on Feb. 11. On Friday, crude slipped more than 20% below its June peak, below $41 a barrel officially pushing it into a fresh bear market—defined as a decline of at least 20% from a recent high.
What a difference seven weeks can make.
The pivot lower has industry specialists like those at Morgan Stanley pointing to “worrisome trends” and forecasting crude prices to resume a fresh decline—possibly to as low as $35 a barrel for the second half of 2016.
Morgan Stanley points out that one of key issues for crude is a severe oversupply of refined products from crude, namely gasoline, while demand is waning. “Refined product glut and market share battle will weigh on crude oil. An overcorrection in crude oil demand from refiners is needed to clear product market overhangs,” researchers at Morgan Stanley, led by economist Adam Longson, wrote.Click here for reuse options!
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