By Timothy Puko and Matthew Cowley
Oil prices on Monday skidded to their biggest single-day
declines in more than three months, as gyrations in Chinese stocks
and the prospect of more crude from the U.S. and Iran revived
worries about the global supply glut.
China's stock markets have plunged in recent weeks, which
sparked worries among investors about oil demand in the world's
second-largest consumer. Diplomats are trying to hammer out a final
deal on Iran's nuclear program at the same time Iranian officials
have signaled they want to export even more crude than traders had
expected. And a "no" vote in Greece's referendum on Sunday has also
bolstered the dollar, pushing down the prices of many commodities
in the process.
These concerns are coming to the fore on the heels of data
showing the first rise in the number of rigs drilling for oil since
December. Also last week, U.S. weekly figures showed an increase in
crude-oil stockpiles for the first time in nine weeks.
"All signs point south for oil prices," analysts at Capital
Economics wrote in a note on Monday.
The U.S. benchmark oil price slid for the third trading session
in a row, closing down $4.38, or 7.7%, to $52.53 a barrel on the
New York Mercantile Exchange. Monday's losses are the biggest in
percentage terms for a single session since February, though they
also included declines during limited electronic trading on the
Friday holiday. Nymex crude settled at its lowest level since April
13.
Brent crude, the global benchmark, recently traded down $3.85,
or 6.4%, to $56.47 a barrel on ICE Futures Europe. Brent was on
course for its biggest losses in one session and lowest settlement
price since the week of April 6.
Capital Economics lowered its year-end price forecast by more
than 8%, it said in its note. That puts U.S. oil at $50 a barrel to
end 2015 and Brent at $55.
For two months, oil prices had remained relatively stable at
around $60 a barrel, and their breakaway from that area means the
selloff is likely to deepen, said Mark Waggoner, president of
brokerage Excel Futures.
Oil is likely to slip just below $50 a barrel, the last area it
stabilized in back in February, he said. Iranian exports and the
resilience of U.S. producers make it increasingly unlikely that
bulls will see the production declines they expected, Mr. Waggoner
added. "I still think production is going to increase," he said.
"There's a whole gambit" of bad news for oil.
The Chinese government over the weekend halted all new initial
public offerings and the central bank is expected to help investors
buy equities, according to The Wall Street Journal. The turmoil in
Chinese stocks is yet another sign of the wrenching economic
transformation that is under way in the Asian giant. For investors,
the concern is that the Chinese government may struggle to contain
the problems, broadly slowing growth and demand for oil along with
it.
The sudden slump in Chinese stocks "is a huge cause for concern
and as such can't be bullish for oil," said Tamas Vargas, an
analyst at PVM brokerage in London.
In Vienna, Iran and six world powers are negotiating in an
effort to reach a final agreement on curbing Iran's nuclear
program. The Wall Street Journal reported Iran wants to double oil
exports to 2.3 million barrels a day if a deal is reached and
sanctions are lifted.
The victory for the "no" vote in Greece's referendum on Sunday
has also prolonged the uncertainty in global crude-oil markets.
Greeks overwhelmingly voted against their international creditors'
conditions for further bailout aid, increasing uncertainty about
Greece's future in the eurozone.
The WSJ Dollar Index is up 0.3% Monday, and, because oil is a
dollar-denominated commodity, a stronger dollar often drags prices
lower.
Bjarne Schieldrop, chief analyst for commodities at SEB Markets,
said investors shouldn't see the Greek vote as a buying
opportunity.
"News of an Iran deal may come tomorrow and a final resolution
over Greece is likely to take longer," said Mr. Schieldrop. "Thus,
it looks risky to buy the Greek selloff today as news of an Iran
deal may arrive before a Greek resolution."
In refined products, August gasoline ended down 11.06 cents, or
5.4%, at $1.9237 a gallon on the Nymex, while August diesel lost
13.10 cents, or 7.1%, to $1.7089 a gallon.
Write to Timothy Puko at tim.puko@wsj.com and Matthew Cowley at
matthew.cowley@wsj.com
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