Oil approaches bear market amid biggest monthly loss in a year

HONG KONG (BLOOMBERG) - Oil was poised to enter bear market in New York with its biggest monthly decline in a year as brimming crude and fuel inventories forced a retreat toward US$40 (S$54.06) a barrel.

US futures fell 1.1 per cent, bringing the monthly drop to 16 per cent. Prices settled on Thursday 19.7 per cent below their June peak, close to the common definition of a bear market. US crude inventories rose last week for the first time since May while gasoline stockpiles expanded, swelling a surplus that was already at the highest seasonal level in at least two decades. Libya's biggest oil ports are reopening after a dispute with guards at the facilities was settled, although other factions in the country have threatened to block shipments.

Oil has slipped about 20 per cent since early June, ending a recovery that saw prices almost double from a 12-year low in February. Supply disruptions from Nigeria to Canada that trimmed a worldwide surplus have abated, while concerns about the strength of demand have increased. Producers including BP, Royal Dutch Shell and Total reported sharp declines in second-quarter earnings as lower prices continued to take their toll.

"This will be a bumpy ride," Ed Morse, New York-based head of commodities research at Citigroup, said by e-mail. "There remains a crude oversupply, and for seasonal and other reasons a gasoline oversupply has emerged. It will take a good six months to work off the product oversupply."

West Texas Intermediate for September delivery lost as much as 50 US cents to US$40.64 a barrel on the New York Mercantile Exchange and was at US$40.70 at 9:49 a.m. London time. The monthly drop is the biggest since July 2015, when prices also recorded their steepest loss of that year, with a 21 percent decline.

Brent for September settlement, which expires Friday, slid 74 cents to US$41.96 a barrel on the London-based ICE Futures Europe exchange. Prices are also down 16 per cent this month, the most since December. The more-active October contract lost 56 cents to US$42.67. The global benchmark traded at a premium of US$1.31 to WTI for September.