By Mark Shenk
(Bloomberg) — Oil closed at the lowest level in more than six years in New York amid speculation that demand may slip as economies slow, and Iran said OPEC output may climb to a record.
West Texas Intermediate futures fell 1.5 percent after manufacturing in the New York region unexpectedly shrank, and Japan’s economy contracted last quarter. The Organization of Petroleum Exporting Countries may boost production to 33 million barrels a day after Iran’s international export restrictions are removed, according to the nation’s OPEC representative.
Oil has slumped more than 30 percent from this year’s peak in June on speculation the global surplus will be prolonged. While U.S. crude stockpiles fell a third week through Aug. 7, supplies remain more than 90 million barrels above the five-year average for this time of year. The number of rigs seeking oil in the U.S. rose last week, Baker Hughes Inc. data show.
“There’s nothing on the economic front pointing to increasing demand,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. “The return of Iranian oil is expected to add to the surplus of supply.”
WTI for September delivery dropped 63 cents to settle at $41.87 a barrel on the New York Mercantile Exchange. It was the lowest close since March 2009. The volume of all futures traded was 9.4 percent above the 100-day average at 2:45 p.m. Futures are down 21 percent this year.
Brent for October settlement fell 45 cents, or 0.9 percent, to end the session at $48.74 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a $6.33 premium to WTI for the same month.
A technical indicator shows prices have probably dropped too quickly to sustain further losses. WTI’s 14-day relative strength index is about 25, below 30 for the fifth straight day, data compiled by Bloomberg show. Brent’s 14-day RSI was near 29. A reading below 30 typically signals the market is oversold.
“The market is oversold after falling $20 in a relatively short time,” Phil Flynn, senior market analyst for Price Futures Group Inc. in Chicago, said by phone. “You can expect little rallies when a market has fallen so much.”
Manufacturing in the New York region slumped at the fastest pace since the last recession, damping optimism in the economy as the Federal Reserve considers raising interest rates at its next meeting.
Prices also declined after Japan’s gross domestic product fell an annualized 1.6 percent last quarter, the Cabinet Office said on Monday. China’s shock devaluation of its currency last week focused investors on the vulnerability of other economies in the region.
“Shaky demand is the focus right now,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. “With the Japanese economy now contracting, you have to worry that the Chinese problems are spreading. We could be looking at the start of an Asia-wide slowdown.”
The global oil market is already in surplus by about 3 million barrels a day, with Saudi Arabia and Iraq responsible for OPEC’s oversupply in the past six months, Iran’s state-run Islamic Republic News Agency reported Sunday, citing the nation’s OPEC representative Mehdi Asali.
Drillers in the U.S. have added rigs to fields for the fourth straight week, Baker Hughes said on its website on Friday. While the number of active machines has climbed to 672, the total count is still down almost 60 percent since December.
“Supplies are unrelenting,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, said by phone. “The Empire State index was abysmal and the driving season is coming to an end, so we’re looking ahead to weaker demand.”
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