Bottomless crude oil (WTI) likely headed towards 30’s

<p>Crude oil started the new trading week under pressure once again as persistent oversupply concerns were exasperated by preliminary GDP data from Japan on Monday […]</p>

Crude oil started the new trading week under pressure once again as persistent oversupply concerns were exasperated by preliminary GDP data from Japan on Monday that showed the economy contracting last quarter. Though the contraction was slightly less than prior consensus expectations, the data raised questions as to the demand outlook for the world’s third largest economy and third biggest oil consumer.

This data from Japan compounds recent indications of a troubled economy in China, which is the second biggest consumer of crude oil.

Arguably more pressing than these new concerns over sustained global demand, however, are the ongoing conditions of global oversupply and overproduction. Last week, OPEC reported close to record levels of production for July, as the organization’s Persian Gulf members continue to staunchly refuse a cut-back. Oman’s oil and gas ministry also just reported that production levels climbed above 1 million barrels per day in July for the first time in the country’s history.

WTI Daily Chart

 

On top of all of this, the US oil rig count was reported last week to have risen for the fourth consecutive week, indicating growing production in the US as well.

If all of these overproduction conditions were not enough to weigh on the price of crude oil, there are still heavy concerns over the lifting of Iran sanctions that would result in a further supply glut from the addition of Iranian oil.

The West Texas Intermediate (WTI) benchmark for crude oil fell to a new six-year low just above 41.00 on Monday as supply and demand worries pressured prices. Last week, WTI had already broken down marginally below key support around the 42.00 level, which was established back in March. Now that this breakdown has occurred, persistent oversupply conditions and global under-demand projections could quickly push WTI below the 40.00 psychological level, with a major downside target around 35.00, which was last approached in late 2008.

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