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Crude Oil Hits Four-Month Low on Supply/Demand Woes

By:
James Hyerczyk
Updated: Aug 3, 2015, 11:34 UTC

September Crude Oil prices traded lower on Monday. The market fell to a new four-month low in reaction to another rise in the number of U.S. oil rigs and

Crude Oil Hits Four-Month Low on Supply/Demand Woes

crude-oil derrick
September Crude Oil prices traded lower on Monday. The market fell to a new four-month low in reaction to another rise in the number of U.S. oil rigs and a report showing weak China manufacturing activity. The increased rig count likely means the supply glut will grow over the near-term. The data from China means less demand.  

According to data from Baker Hughes, Inc. released on Friday, the oil-rig count in the U.S. rose by five to 664 in the latest week. This news negates the positive impact of signs that the country’s oil production might have peaked.

Additionally, more supply-side concerns were raised over the week-end when Iran’s minister said the country can increase oil production in one week after international sanctions are lifted.

Data out of China weighed on the demand side of the crude oil equation. The Caixin manufacturing purchasing managers’ index fell to a two-year low of 47.8 in July, compared with 49.4 in June. A slowdown in manufacturing will likely mean lower demand for oil from China.

A stronger U.S. Dollar helped weigh on December Comex Gold prices. The dollar is being underpinned by supporters of an interest rate hike by the Fed in September. According to St. Louis Federal Reserve President James Bullard, “We are in good shape” to begin hiking rates at a policy meeting set for September 16-17.

The EUR/USD was under pressure on Monday in limited trading. The catalyst behind the weakness was a steep plunge in Greece’s stock market which reopened for the first time in five weeks. According to reports, the market opened down about 20% with heavy selling felt in the banking sector.

In other news, Spanish Manufacturing PMI fell to 53.6. Traders were pricing in a reading of 54.2.

The GBP/USD traded weaker on talk of a September rate hike by the Fed. Additionally, the Markit/CIPS Purchasing Manager’s Index edged higher to 51.9 in July, from a 26 month low of 51.4 in June. However, it remained below the average for the current sequence of growth that began in April 2013.

According to recent comments from Bank of England members, the BoE and the Fed may be in a race to raise interest rates. This is what is going to drive the volatility in the GBP/USD market until the end of the year. Friday’s comments from Fed member James Bullard may be giving the Fed the edge today. This month’s BoE meeting on Thursday, August 6 could trigger some volatile price action to end the week if a few members decide to vote for a rate hike. 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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