By Nicole Friedman
U.S. oil prices fell to a near-three-month low Tuesday on
concerns about a growing glut of crude oil and turmoil in the
Chinese stock market.
Light, sweet crude for August delivery fell 20 cents, or 0.4%,
to $52.33 a barrel on the New York Mercantile Exchange, the lowest
settlement since April 13.
Brent, the global benchmark, rose 31 cents, or 0.5%, to $56.85 a
barrel on ICE Futures Europe, after falling as low as $55.10 a
barrel earlier in the session.
On Monday, oil prices posted their largest declines since
February on concerns about a continued oversupply of crude. Output
from the U.S. and the Organization of the Petroleum Exporting
Countries has increased in recent months, surprising some investors
who had expected production to decline as low oil prices prompted
producers to slash spending on new production. Though demand has
risen sharply, some market watchers say that consumption won't be
enough to eat away at the global glut of crude oil until 2016.
The U.S. Energy Information Administration said Tuesday that
U.S. production fell from a 44-year high in May and is expected to
keep declining through February 2016. Even so, the agency expects
global supplies to exceed consumption this year and next.
Recent data showing higher-than-expected oil supplies, along
with concerns about the crisis in Greece and the stability of
China's stock market, have prompted some traders to pull back from
bullish bets on oil. Money managers, including hedge funds, cut
their aggregate bet on rising oil prices in the week ended June 30
to the smallest since April, according to the Commodity Futures
Trading Commission.
"It's been three days of can't-catch-your-breath," said Michael
Hiley, an energy trader at brokerage LPS Partners Inc., adding that
traders got caught off-guard and had to close out positions once
prices broke out of the narrow band they had traded in for several
weeks.
"We were sort of stuck in a range for two months and then it's
gone," Mr. Hiley said. "It's hard to pick a bottom here."
Prices traded near flat, hovering around $60 a barrel, in May
and June as traders weighed expectations of slowing U.S. production
against concerns that higher prices would prompt producers to ramp
up their drilling activity.
"People had already bought this market, they had ridden it up,
and the question is, what do they do next?" said John Saucer, vice
president of research and analysis at Mobius Risk Group. "Anybody
that bought any crude during that multi-month range is certainly
now underwater, if they're still in the position."
Gyrations in the Chinese stock market have weighed on a variety
of commodities, including copper and iron ore, which rely on
Chinese consumption. Chinese stock indexes are down more than 25%
from highs reached in June. China is the No. 2 consumer of crude
oil.
"The incremental buying that has kept the oil market in a pretty
solid condition has been Chinese buying," said Scott Shelton,
broker at ICAP PLC. "I don't think that we're selling off because
of oil. I think we're selling off because oil's a part of an asset
class that will suffer should the Chinese stock market continue to
melt down."
Talks between Iran and six world powers were extended past
Tuesday night's deadline to July 10. Many market participants
expect a final deal with Iran over its nuclear program to be
reached, which would likely weigh on oil prices. A deal would lead
to the lifting of sanctions on Iran's oil exports, allowing the
country to sell more crude into an already-oversupplied global
market.
Traders are also waiting on weekly inventory data due from the
EIA on Wednesday. Crude-oil inventories unexpectedly rose last week
for the first time in nine weeks, weighing on prices. Analysts
surveyed by The Wall Street Journal expect Wednesday's report to
show that stockpiles fell by a million barrels in the week ended
July 3, while gasoline inventories were unchanged and stocks of
distillates, including heating oil and diesel fuel, rose.
The American Petroleum Institute, an industry group, said late
Tuesday that its own data for the same week showed a 950,000-barrel
draw in crude-oil supplies, according to sources. The group said
that gasoline supplies fell by 2 million barrels, according to the
sources. API said U.S. distillate stocks were up by 4.2 million
barrels in the week, according to the sources.
Gasoline futures rose 2.57 cents, or 1.3%, to $1.9494 a gallon.
Diesel futures gained 0.24 cent, or 0.1%, to $1.7113 a gallon.
Write to Nicole Friedman at nicole.friedman@wsj.com