Crude Oil Rebounds Slightly After Dropping Below $50 for First Time Since January

By Mark Shenk

(Bloomberg) — Oil climbed amid speculation that its drop below $50 a barrel is excessive given projections that U.S. supply will decline.

Brent futures rose as much as 1.9 percent, paring a 5.2 percent fall on Monday. U.S. crude inventories probably declined for a second week, according to a Bloomberg survey before government data Wednesday.

Chinese stocks rose Tuesday, with the benchmark index rebounding from a three-week low and a technical indicator signaled the market is due for a bounce.

“Some bullish factors have sneaked in after yesterday’s avalanche,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “There’s been a correlation between oil and Chinese stocks as of late, and there was a pretty positive night there with stocks up 3.6 percent. We’re also expecting a storage draw here.”

Oil in both London and New York is trading in a bear market as growing supplies and signs of slower economic growth in China fuel a rout in commodities from rubber to copper. U.S. crude inventories remain about 95 million barrels above the five-year seasonal average. American refinery operations, which surge in July as they meet summer gasoline demand, typically slow down from August through October for maintenance.

Global Benchmark

Brent for September settlement rose 56 cents, or 1.1 percent, to $50.08 a barrel on the London-based ICE Futures Europe exchange at 9:33 a.m. in New York. The contract dropped to $49.52 on Monday, the lowest close since Jan. 29.

West Texas Intermediate for September delivery increased 74 cents, or 1.6 percent, to $45.91 a barrel on the New York Mercantile Exchange. Total volume was 18 percent below the 100- day average. It declined to $45.17 on Monday, the lowest close since March 19. The U.S. benchmark crude traded at a $4.40 discount to Brent.

Brent’s 14-day relative strength index is at about 23 today, data compiled by Bloomberg show. That’s a seventh day below 30, signaling that the market is oversold and further losses probably can’t be sustained. The 14-day RSI for WTI stood close to 27.

Crude stockpiles in the U.S. probably fell by 1.63 million barrels last week, according to the median estimate in a Bloomberg survey of eight analysts before an Energy Information Administration report Wednesday.

Balancing Supply

U.S. oil prices have slipped close to levels that will curb supply growth, according to consultant Petromatrix GmbH.

“There’s a price range of $45 to $65 for WTI crude that’s needed to make U.S. shale oil profitable,” said Olivier Jakob, managing director at Petromatrix in Zug, Switzerland. “Prices inevitably rebound as soon as we get near the edge of that range because the market knows any further losses will kill off U.S. supply growth.”

China’s official Purchasing Managers’ Index and a factory index both fell in July, indicating that efforts to bolster the world’s second-largest economy have yet to fuel a recovery. The Bloomberg Commodity Index of 22 raw materials lost about 11 percent in July to the lowest since 2002.

–With assistance from Grant Smith in London.

©2015 Bloomberg News