U.S. Oil Closes Below $40 a Barrel for 1st Time in Nearly 4 Months

As reported by Reuters, U.S. crude futures settled down more than 1 percent after initially rising over 2 percent, traders said.

“There is much talk about the product glut replacing the oil glut, and this is a worrisome indicator for crude demand,” said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.

U.S. West Texas Intermediate (WTI) crude settled down 55 cents, or 1.4 percent, at $39.51 a barrel. It had rallied to $40.91 earlier. On Monday, it slid below $40 for the first time since April.

Brent crude fell 34 cents, or 0.8 percent, to settle at $41.80, after touching a session high at $43.18.

The dollar hit a six-week low, which buoyed oil in early trade, but then U.S. stocks fell to a three-week trough.

“I am bullish here overall but worry about being too early,” said Scott Shelton, energy futures broker at ICAP in Durham, North Carolina. “I also wonder if the market is going to chop around a bit first, like it did in late May to June before dropping after many threw in the towel.”

Oil hit 2016 highs above $50 a barrel between late May and June as crude supplies tightened from disruptions in Canada, Nigeria and Libyan energy sectors, and a near economic meltdown in OPEC member Venezuela. The rally faded soon after as higher prices spurred more output of crude and refined products.

Global fuel stockpiles are brimming. Refineries have churned out huge volumes of diesel, gasoline and jet fuel. Crude remains oversupplied as top OPEC oil producers pump near record high levels.

Saudi Arabia has cut its crude selling price to Asian customers, signaling another price war and tussle for market share.

Hedge funds and other speculators have turned more bearish toward crude and refined products in the last two months amid signs of a gasoline glut.

“With the market continuously focusing on oversupply, this bearish trend seems hard to change in the near term,” said Hans van Cleef, ABN AMRO senior energy economist.

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