Just days after having seen December 2003 lows, West Texas Intermediate (WTI) crude oil front-month futures broke the $32 a barrel price levels during trading today. As of 12:27 PM EST today, the benchmark for American crude prices was trading at $31.56 per barrel.
Today’s session marks the sixteenth consecutive day of the futures trading in the red and so far today, the futures contract has lost 4.83% of its value. Following this, the United States Oil Fund LP (ETF) (NYSEARCA:USO) was seen trading down by 5% in the same time.
The weakness in crude oil prices during today’s trade is once again being fueled by speculation of depressed demand from the second-largest consumer of the commodity: China. The Shanghai Composite Index lost 5.33% during Monday’s trade following the 40% increase in overnight interest rate on yuan outside of the country.
Brent crude front-month futures were also trading down by 5.42% at the same time, at $31.73 per barrel. Consequently, the United States Brent Oil Fund, LP (NYSEARCA:BNO) was trading down by 6.03% in the same time.
What added to the futures’ weakness during today’s trade was the marginal strength in the US dollar during today’s trade. The US dollar was trading up by 10 basis points (bps) against a basket of global currencies.
Goldman Sachs has been a long-time bear on crude oil market, with the investment bank having said in a note last year that it was looking at prices falling to around $20 a barrel before the markets would rebalance themselves. The bank’s theory behind the expectation was fundamental-driven.
On Monday, Morgan Stanley was reported to have quoted similar expectations. However, unlike Goldman Sachs, Morgan Stanley was reported to have said that the move to $20 a barrel would be largely driven by non-fundamental drivers, such as the rapid strength in the US dollar—diminishing the attractiveness of the greenback-denominated futures contracts.
Morgan Stanley analyst, Adam Longson, said in the report that “Given the continued U.S. dollar appreciation, $20-$25 oil price scenarios are possible simply due to currency.” Mr. Longson added that while the $60 a barrel price levels were broken due to an oversupply in the market, non-fundamental drivers drove price levels further below the $60 mark.
The weakness during Monday’s trading session follows losses posted by both global and American crude oil price benchmarks north of 10% during last week. WTI lost 10.48% of its value during the five-day period, while Brent lost 12.13% in the same time.
Last Thursday, WTI had slumped to a low of $31.20 per barrel, last seen in December 2003. However, today’s weakness led to the benchmark futures contract seeing new lows.