West Texas Intermediate settled at a new six and a half year low on fresh concerns that the global glut is set to grow, concerns over the commodity’s demand in Japan and a robust dollar.
Light Sweet Crude for September delivery, the US benchmark, ended 63 cents or 1.5% lower at $41.87 a barrel on the New York Mercantile Exchange.
Based on the most active contracts, this is the lowest the UIS benchmark has settled since March 2009.
Brent for October delivery, the new front month contract, ended 45 cents or 1.0% lower at $48.74 a barrel after fluctuating between gains and losses.
Japan, the world’s third largest oil consumer reported on Monday that its economy shrank at a 1.6% annualized rate in July increasing concerns over the outlook for the demand of oil, in the country. China’s surprise currency devaluation last week also continued to weigh on market sentiment.
“The general talk in the market is about the continued ripple effect from the Chinese devaluation,” David Thompson at Washington-based energy-specialized commodities broker Powerhouse, told Reuters.
Demand for both West Texas Intermediate and Brent crude is also set to fall, according to traders, as Refineries in Europe enter the maintenance period for autumn.
Also weighing on oil prices was a gain in the value of the dollar against a basket of foreign currencies on Monday on a report that US manufacturing output expanded at its highest rate in more than eight months.
A stronger dollar is bearish for the demand of commodities like oil denominated in dollars as it makes them more expensive to holders of other currencies.
“Investor focus remains on the global supply glut and production surplus, underscored by headlines that [the Organization of the Petroleum Exporting Countries] may reach a record level of output later this year as Iranian production is ramped up and exports resume,” Tyler Richey, co-editor of The 7:00’s Report., told Market Watch.
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