Oil Falls, US Crude Ends Below $40 On Nagging Glut Worry
NEW YORK Aug 2 (Reuters) - Oil prices fell again on Tuesday, erasing early gains and dragging U.S. crude below $40 a barrel as persistent worries of a glut offset the boost from a weak dollar early in the session.
U.S. crude futures settled down more than 1 percent after initially rising over 2 percent, traders said. A slide in U.S. equities also weighed.
"There is much talk about the product glut replacing the oil glut, and this is a worrisome indicator for crude demand," said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.
U.S. West Texas Intermediate (WTI) crude settled down 55 cents, or 1.4 percent, at $39.51 a barrel. It had rallied to $40.91 earlier. On Monday, it slid below $40 for the first time since April.
Brent crude fell 34 cents, or 0.8 percent, to settle at $41.80, after touching a session high at $43.18.
The dollar hit a six-week low, which buoyed oil in early trade, but then U.S. stocks fell to a three-week trough.
"I am bullish here overall but worry about being too early," said Scott Shelton, energy futures broker at ICAP in Durham, North Carolina. "I also wonder if the market is going to chop around a bit first, like it did in late May to June before dropping after many threw in the towel."
Oil hit 2016 highs above $50 a barrel between late May and June as crude supplies tightened from disruptions in Canada, Nigeria and Libyan energy sectors, and a near economic meltdown in OPEC member Venezuela. The rally faded soon after as higher prices spurred more output of crude and refined products.
Analysts polled by Reuters expect the U.S. government to report on Wednesday that crude stockpiles fell 1.4 million barrels last week after a surprise build the previous week that broke a nine-week drawdown. Trade group American Petroleum Institute (API) will issue a preliminary inventory report at 4:30 p.m. EDT on Tuesday ahead of the government data.
Global fuel stockpiles are brimming. Refineries have churned out huge volumes of diesel, gasoline and jet fuel. Crude remains oversupplied as top OPEC oil producers pump near record high levels.
Saudi Arabia has cut its crude selling price to Asian customers, signaling another price war and tussle for market share.
Hedge funds and other speculators have turned more bearish toward crude and refined products in the last two months amid signs of a gasoline glut.
"With the market continuously focussing on oversupply, this bearish trend seems hard to change in the near term," said Hans van Cleef, ABN AMRO senior energy economist.
(Additional reporting by Karolin Schaps in LONDON and Henning Gloystein in SINGAPORE; Editing by Dale Hudson and Marguerita Choy)