Oil tumbles back to cyclical lows in Asian trading

Market participant's perceptions of an oversupplied market sent oil tumbling back to cyclical lows in Asian trading on Monday, as concerns over geopolitical risk receded.

At 07:45, the Brent front month futures contract was trading down 1% of 49 cents at $55.92 per barrel while the WTI was down 1.7% or 84 cents at $48.03.

On 26 March, Brent and WTI spiked above $60 and $50 respectively, as news of a Saudi Air Force strike on Yemen’s Shia Houthi fighters sent both benchmarks higher.

While Yemen itself is a marginal producer with an output of 140,000 barrels per day (bpd), the Bab al-Mandeb Strait between the country and Djibouti is a major shipping artery via which about 3.8 million bpd of oil passes through.

Elsewhere, the latest Baker Hughes weekly rig count, published on 27 March, revealed a further decline in the number of operational US rigs, with the country’s count down 761 from the same week last year to 1048. Elsewhere, the number of Canadian rigs fell by 178 to 120, while the international count, excluding the US and Canada, declined by 66.

Excluding those for gas exploration the number of US rigs in operation fell back by just 12, the smallest reduction in 15 weeks.

Oversupply and mixed demand from emerging markets continues to impact sentiment. “Furthermore, oil demand growth will face headwinds from the expected structural appreciation of the dollar,” Barclays analysts noted.