Prices of crude dropped on Monday as market players regained grounds after three weeks of surge and as a hike in the dollar in the previous week weighed on energy markets.
On the ICE Futures in Europe, internationally traded Brent crude plunged 31 cents from its last settlement, trading at $44.80 per barrel.
United States West Texas Intermediate futures on the New York Mercantile Exchange slipped 44 cents at $43.29 per barrel.
Energy analysts noted that the decline in oil prices were due to cashing in after three weeks of jumping prices.
According to a commodity economist, “Its more of a correction since we have no important data today and weve seen quite some gains in the past few weeks.”
Market data indicated that the number of open positions betting on climbing West Texas Intermediate prices gained to levels which were last seen in June 2015 last week, while bets taken out in anticipation of plummeting prices.
As stated by a market analyst, “Speculative financial investors are likely to take advantage of this opportunity to take profits after prices rose last week to 4-and-a-half month highs, mainly thanks to their own actions.”
Market players also reported crude edged lower on a soar in the dollar on Friday against rival major currencies on expectations that Japan will extend its volatile monetary easing through negative interest rates.
With a higher greenback, crude imports are more expensive for countries using foreign currencies since oil is a dollar denominated commodity, potentially hitting demand.
Morgan Stanley reported that fresh gains were hugely sparked by hedge funds investment and that the rallies prompted from these inflows were not supported by fundamentals as production from the Organization of Petroleum Exporting Countries was likely to hike while slowing economic growth, including in emerging markets, could affect oil demand.
As reported by a market analyst, “A macro unwind (of its positions) could cause severe selling given positioning and the nature of the players in this rally.”
“Still-elevated inventory levels, the return of some disrupted supply, further boosts to Saudi and Iranian supply, and increased non-OECD product exports all have the potential to move prices lower over the next several months, especially if broader macro sentiment shifts,” the report added.
On the other hand, prices proceed to be underpinned as hopes that slumping output among non-OPEC supply glut by next year, provided there is no major economic downturn.
The downturn came after a week of robust increases in the commodity that were on the back of these hopes for China’s economy and speculation about the resumption of talk on keeping production at January levels.
An analyst said, “If the Saudis ramp production up by a substantial amount, the $40 mark should be easily broken. That creates a problem that were not even going to see the oil market rebalance, not even by the first half of next year.”