Oil prices fell for seven weeks, new lows, short-term support

The international oil price fell for five consecutive days, dragged by multiple factors such as the sharp increase in US crude oil inventories, the continuous strengthening of the US dollar, and the rising temperature of the global economy. On electronic trading Tuesday, New York crude oil futures fell below $72, the lowest level in seven weeks. Analysts believe that the current oil market is mainly led by some negative factors, but in the short term it is expected to find support near 70 US dollars. In the medium to long term, there is no need to worry too much about the sharp fall in oil prices, because the demand outlook remains stable.

U.S. stocks suppress popularity

As of 20:30 p.m. Beijing time, New York’s October crude oil futures fell 1.7% to US$71.89, the intraday low since July 7. In the past five trading days, oil prices have been falling. And if compared to the level at the beginning of this wave of fall in early August, the price of oil has fallen by more than 10 dollars in just three weeks.

Analysts believe that the recent drop in oil prices, the United States crude oil inventories and gasoline stocks rose unexpectedly is a major incentive. Recently, the gasoline stocks in the United States have risen sharply, and the end of the summer driving peak has also further negatively affected the demand for the oil market. Gasoline demand will normally decline at the end of the summer in the northern hemisphere, because the holiday season is about to end. However, analysts said that this year's drop in gasoline demand was earlier than usual.

The data released by the U.S. government last week showed that both U.S. crude oil and refined oil inventories have reached record highs. Among them, the total amount of crude oil inventories increased by 5.9 million barrels last week to 1.13 billion barrels, which was the highest level since the US Energy Information Administration began releasing its inventory data for the first time in 1990. Since the beginning of June, the US’s commercial oil inventories have increased by 40 million barrels. This week, a survey conducted by Thomson Reuters before the latest US weekly crude oil inventories data showed that US crude oil inventories were expected to increase by 800,000 barrels last week.

Analysts at Tokyo Mitsubishi Corporation said that once oil prices fell below the support level of $72, the next step may fall to between $60 and $70.

A stronger dollar drags down oil prices

Closely related to demand is of course the state of the economy. The recent economic indicators of major economies such as the United States all point to weakness, which has deepened investor concerns about the slowdown in economic growth. This Friday, the United States will release revised figures for second-quarter GDP. Many economists expect that the second quarter growth rate of the US economy will be significantly reduced from the previous announcement of 2.4% to 1.3%. Investors fear that the outlook for the major economies such as the United States will deteriorate, which may make the decline in demand for crude oil in the fall even greater.

The other factor that caused oil prices to fall was the dollar. The recent dollar exchange rate rebounded continuously, which also put pressure on dollar-denominated commodities. As of 20:40 on Beijing time on Tuesday, the US dollar index rose 0.2% to 83.51. At the beginning of this month, the U.S. dollar index briefly fell to around 80.

However, there are also many people who believe that the rise in U.S. crude oil inventories is not convincing. From the global perspective, crude oil inventories have not only not increased, but have declined.

There is also strong support below

Technical analysts believe that the relative strength indicator of oil prices has entered the oversold region and may be supported in the next few trading days, such as the key $70 integer mark.

Some institutions believe that investors' expectations of economic and crude oil demand are too pessimistic. The JP Morgan report this week said that the global economy should not be described as bleak. The bank expects that the demand for gasoline in India will increase by nearly 15% over the same period of last year, thanks to soaring car sales.

JP Morgan Chase recently lowered its oil price forecast, but its average price forecast for this year's oil price still reached 77.25 U.S. dollars, and for 2011, the average price forecast for crude oil fell from 90 U.S. dollars per barrel to 79.25 U.S. dollars. Goldman Sachs still expects that the price of U.S. crude oil futures will rise to 85 to 95 U.S. dollars per barrel by the end of 2010. Tight spot market conditions are one of the reasons for the Bank’s maintenance of its forecast.

Another sign that the oil market is tightening is the positive spread of crude oil, that is, the premium of forward contracts on recent contracts has shrunk. Generally, the positive spread should be greatest when short-term crude oil demand is weak. However, the discount on the recent contract of New York crude oil futures over the one month period last week fell to only 0.25 US dollars, while the average level last year was 1.58 US dollars.

In this week’s report, BNP Paribas stated that due to the high level of inventory, the positive spread of crude oil futures is obviously low and may be expanded in the near future. However, the bank still expects that the price of oil will gradually increase in the rest of the year and may rise to around US$89 per barrel in the fourth quarter.