BARGAINS BY THE BARREL

Oil prices are falling again. Here’s why

Obsession
Energy Shocks
Obsession
Energy Shocks

After appearing to bottom out in March, crude oil prices are falling once again.

West Texas Intermediate crude is nearly back below $45 a barrel, and Brent is also scraping the lowest levels since the spring.

So, what’s driving the latest drop?

Demand

On the demand side, there is, of course, China—the factor looming over commodities across the globe. Capital Economics suggested in a note to clients that the country’s cratering stock market is having an effect on other markets. Beyond that is China’s ongoing economic softness. It’s purchasing manager index is having trouble staying above 50, which is the line between economic expansion and retraction. Private estimates of Chinese factory activity are more dire.

Supply

The conventional wisdom around sinking oil prices earlier in the year was that Saudi Arabia was flooding the market as a challenge to insurgent US shale producers. The gambit worked, and prices stabilized as American drillers shut down their oil rigs and slowed their oil exploration.

Not only are those drillers turning their rigs back on, but Iran, the sleeping oil giant, is kicking into gear after striking a deal over its nuclear capabilities, Bloomberg reports:

Production can increase by 500,000 barrels a day within a week after sanctions end and by 1 million barrels a day within a month following that, state-run Islamic Republic News Agency reported, citing Zanganeh in an interview with state TV. Sanctions against Iran’s oil industry should be lifted by late November, he said, according to Iran oil ministry’s Shana news agency.

That means more competition for both the Saudis and the Americans. If everything goes according to plan, Iranian oil production looks set to return to levels not seen in three years.

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