West Texas Intermediate Oil rallied from a six and a year low to end modestly higher on a weaker dollar and the formation of the first hurricane of the 2015 Atlantic season.
Light sweet crude for September delivery, due for expiry at the end of the session, added 34 cents or 0.8% $41.14 a barrel on the New York Mercantile Exchange. Crude for October delivery, the new front month contract, settled up at $41.32 a barrel.
“The expiration of the September WTI contract amplified volatile conditions in an already wild energy market,” Tyler Richey, co-editor of the 7:00’s Report, told Market Watch
“The primary supporting factor for oil prices today, as well as the general commodity space, was the continued weakness in the dollar DXY, which is now down over 1% from the best levels of the week.”
Brent for October Delivery ended 54 cents or 1.2% lower at $46.62 a barrel on the London based ICE Futures Exchange.
Analysts however warned that the slide by the US benchmark would continue with worries about China’s economic growth and the global crude glut intensifying.
The dollar weakened on intensifying concerns that the deceleration in China’s economy would cause a slowdown in the global economy.
A weaker dollar is bearish for the demand of commodities denominated in dollars like oil as it makes them cheaper to holders of other currencies.
Expectations that oil prices will remain lower for prolonged periods of time increased pressure on oil producers to effect production cuts.
The oil Minister of Algeria reportedly wrote a letter to the Organization of Petroleum Exporting Countries to consider taking action in response to the low oil prices.
According to sources privy to the matter tough, the minister did not ask for an emergency meeting to be convened over production cuts.
“It has to get worse before [it] gets better,” Wolfe Research told the Wall Street Journal in a note.
“We could see total [refinery] utilization dropping from the current 95% to 89% in [the fourth quarter], taking 1.1 million barrels a day of crude demand out of the market.”
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