Brent Oil Returns to Bear Market as Global Glut Seen Expanding

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Oil Rebalancing Seen as Non-OPEC Supply Falls: Mallinson

Brent Oil relapsed into a bear market as rising Iraqi exports and a rebound in U.S. drilling signaled that the global supply glut will grow.

The European benchmark crude fell 2.1 percent to a four-month low. The grade has lost more than 20 percent from this year’s highest close, meeting the common definition of a bear market. Iraq’s oil exports from the south rose to an all-time high this month. The number of rigs seeking oil rose by 21 to 659, the third weekly gain this month, Baker Hughes Inc. data show.

Oil’s rebound from a six-year low has faltered amid signs a surplus will persist as the U.S. pumps near the fastest rate in three decades and leading members of OPEC pump at record levels. China’s benchmark stock index fell the most since 2007, bolstering concern that raw material demand will slip in the world’s second-biggest economy. The Bloomberg Commodity Index fell to a 13-year low Monday.

“There’s a lot of news and none of it’s good for the energy sector,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “It’s an avalanche out there and you proceed at your own risk. We’re seeing a lot of risk aversion at the moment.”

Brent for September settlement fell $1.15 to end the session at $53.47 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since March 16.

West Texas Intermediate for September delivery declined 75 cents, or 1.6 percent, to settle at $47.39 a barrel on the New York Mercantile Exchange. It was the lowest close since March 20. WTI moved into a bear market on Thursday. The U.S. benchmark closed at a $6.08 discount to Brent.

Iraq Exports

Exports from southern Iraq rose to 3.064 million barrels a day in July and will remain at about the same level for the rest of the month, Thaer Yassin, spokesman of the state-owned South Oil Co., said by phone on Monday.

U.S. drillers added the most oil rigs to fields last week since April 2014, according to Baker Hughes data. While the number of active equipment has climbed this month, the total count is still down about 60 percent since December.

“We’re in uncharted territory here,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “A drop like we’ve seen should precipitate a fall in production, but it hasn’t happened. Someone has to blink on the production for this to end, barring anything catastrophic.”

Speculators cut their net-long positions in WTI to the lowest level by 28 percent to 106,383 futures and options in the seven days ended July 21, the least since December 2012, according to the Commodity Futures Trading Commission. Money managers cut net-long positions in Brent futures and options combined by 14,617 contracts to 213,429 during the same week, according to data from ICE Futures Europe.

U.S. Output

Crude output in the U.S. will end the year near the record level even with the drop in the rig count, Morgan Stanley said. Resilient production sets the nation up for another supply gain during the first half of 2016,, according to an e-mailed report Monday from Morgan Stanley analysts including Adam Longson.

The global oil market surplus is the biggest since 1998, when prices slumped below $10 a barrel, according to brokerage PVM Oil Associates Ltd. Supply is set to exceed demand by 2 million barrels a day this year, PVM said in a report, basing its calculations on data from the International Energy Agency.