Oil prices fall further below $50 a barrel
Oil prices fell further Thursday a day after U.S. benchmark crude tumbled below $50 a barrel for the first time since April as bloated U.S. inventories and the prospect of increased Iranian crude shipments fueled concerns about swelling supplies even as demand is waning.
"We've had a lot of supply," says Tom Kloza, global head of energy analysis for the Oil Price Information Service. "Now the worry is that demand is going lower."
West Texas crude for September delivery fell 67 cents, or 1.4%, to $48.53 a barrel after dropping 2.3% on Wednesday. That's down about 20% from a recent peak of $61.01 in late June.
The Obama administration's proposed nuclear deal with Iran would lift sanctions and could allow that country to ship significantly more oil, adding to a recent surge in supplies from Saudi Arabia and Iraq. A Senate hearing on the agreement is scheduled for Thursday.
Crude prices fell Wednesday after the Energy Department said oil stockpiles rose 2.5 million barrels last week even though U.S. refiners processed the most oil on records dating back 26 years. Analysts had expected supplies to drop.
"That's raising questions in a lot of people's minds of what crude inventories are going to be" in the fall after a strong U.S. summer driving season is over, says Andy Weissman, CEO of EBW Analytics.
If storage tanks in Cushing, Okla., the nation's delivery point for oil futures contracts, reach their limit, it could throw more oil onto an oversupplied market.
Also contributing to Wednesday's oil-price decline was the U.S. dollar hitting a nearly four-month high as speculation grew that the Federal Reserve will raise interest rates as early as September. A stronger dollar can hurt demand abroad because it makes U.S. oil more expensive for buyers paying in foreign currencies.
The dip below the $50-a-barrel threshold followed a several-week drop in prices on fears that global demand will slow amid an economic downturn in China and renewed turmoil in the eurozone because of the Greek financial crisis.
The Iran deal has further dragged down oil prices. Phil Flynn, senior energy analyst with the Price Futures Group, says fears of an Iranian oil surge are largely unfounded because it will take the country many months to ramp up its production facilities.
After plunging since the summer of 2014 and hitting a low of about $43 in March, crude prices had been rising until recently on sharp production cutbacks both in the USA and overseas.
Kloza expects oil prices to bounce around the current level the rest of the year. He expects gasoline prices, inflated by the busy summer season, to retest their January lows of about $2 a gallon by the end of the year.