Crude Oil Breaks Below $40

Crude oil broke the psychological $40 level plunging $1.23 in the morning session with WTI touching 39.22 getting no support on from the declining US dollar. The greenback fell to 94.29 down by 55 points as the Asian markets opened after Friday’s rout on Wall Street.  Brent oil fell in sympathy to WTI giving up 94 cents to 44.37.

The decline in Chinese manufacturing PMI reported on Friday upset the global markets as the sector fell farther into contraction. To bolster the Chinese economy, the People’s Bank of China is preparing to flood the banking system with liquidity to boost lending, the Wall Street Journal reported, citing officials and advisers to the central bank it didn’t identify.

While oil fundamentals aren’t strong, physical markets do not corroborate the substantial weakness in flat oil prices. Despite poor macroeconomic headlines, most Chinese oil demand data points remain resilient through July, with China’s crude-oil imports in July up 1.7 million barrels/day from a year earlier to 7.4 million barrels/day, near record levels. China’s total apparent fuel demand was also strong, driven by transport fuels, with apparent gasoline demand 17% higher–the highest growth rate all year.

Iran’s Oil Minister, Bijan Zanganeh, said on Sunday that holding an OPEC emergency meeting may be ‘effective’ to stop the oil price slump, Iran’s oil ministry news agency Shana reported.

“Iran endorses an emergency OPEC meeting and would not disagree with it,” he told reporters in Tehran, according to Shana.

OPEC is not due to meet until December 4 although Algeria has called for an emergency meeting. While OPEC rules say a simple majority of the 12 OPEC members is needed to call an emergency meeting, some OPEC delegates say unless Saudi Arabia is among those in favor no meeting is likely.

Separately Zanganeh was quoted on the oil ministry’s news agency Shana on Sunday that South Korea has agreed to increase its Iranian oil purchases after a nuclear deal with world powers cleared the way for an easing of international sanctions on Tehran. South Korean government and business officials visited Iran seeking possible deals in the oil and gas.

Brent and US crude oil futures hit fresh 6-1/2-year lows on Monday to drop below the latest supports of $45 a barrel and $40 a barrel each as investors fretted that a slowing Chinese economy will lead to weaker demand amid a global supply surplus.

Other commodities also hit fresh lows in early Asian trading as fears spread that a more severe slowdown in China would pull down other economies in the region, denting energy and raw material consumption.

US energy firms added two oil rigs last week, the fifth increase in a row, signaling further pressure on a market awash with crude. 

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