By Nicole Friedman
Oil prices pared losses Tuesday but held near multi-month lows
on concerns about a growing glut of crude oil and turmoil in the
Chinese stock market.
Light, sweet crude for August delivery fell 39 cents, or 0.7%,
to $52.14 a barrel on the New York Mercantile Exchange. Brent, the
global benchmark, rose 5 cents, or 0.1%, to $56.59 a barrel on ICE
Futures Europe.
Earlier in the session, both contracts traded at their lowest
intraday prices since April.
On Monday, 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 also 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."
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 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.
ClearView Energy Partners LLC said in a note to clients that it
sees an 80% chance that negotiations will conclude by July 10. If a
mid-July deal is reached, ClearView said, it sees Brent prices in
the fourth quarter of 2016 around $57.50 a barrel, compared with
the U.S. government's $67 forecast. If no deal is reached,
ClearView sees Brent at $70 a barrel in the fourth quarter of next
year.
Gasoline futures rose 1.5% to $1.9530 a gallon. Diesel futures
fell 0.2% to $1.7056 a gallon.
Write to Nicole Friedman at nicole.friedman@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires