On Tuesday, oil prices hit a near-six year low with the US crude pairing losses later on short-covering, while reaching parity with Brent for the first time in around three months with traders wondering when the six-month long price rout might come to an end.
Oil prices have traded lower for seven consecutive weeks and Brent is down 8% so far this week and US crude is down around 5%.
Traders said that it was not clear immediately why the benchmarks were converging but analysts said it was a combination of oversupplied global markets coupled with the US crude contract’s short covering, as reported by Reuters.
Price Futures Group analyst, Phil Flynn said, “The stock market rallied and that helped US crude and the $44 a barrel level had been a target number for traders and US crude held above that early on Tuesday.”
US crude had dropped to a low of April 2009 at $44.20 earlier in the session before it pulled back to trade down around 40 cents at $45.67 per barrel.
Brent crude dropped $1.56 at $45.87 per barrel after a session low at $45.19.
The plunge in oil earlier in the session was due to United Arab Emirates defending the decision by OPEC of not cutting output.
The New York Times quoted Goldman Sachs report as having said, “We believe this bear market will likely be characterized by more of a U-shaped recovery in which markets take longer to recover and will likely rebound to far lower prices from where they sold off from.”
Oil analysts have reported that the 93-million barrels per day global oil market has a one million to two million barrels in surplus, and that the surplus is not about to go away soon. American production, which has increased by more than one million barrels per day in the last three years, is still growing even though the rate is slower.
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