Oil Enters Bear Market

With continued indications of a global slowdown in economic activity, oil has entered a bear market as oversupplies hurt prices for the second time in a year.

Oil futures has fallen 20% from its peak in 2015 as Brent futures fell over 1% during Tuesday morning trading. WTI futures continued their slide in the U.S., nearing $47 per barrel as losses extended for the second day in a row.

With continued indications of a global slowdown in economic activity, oil has entered a bear market as oversupplies hurt prices for the second time in a year.

Oil futures has fallen 20% from its peak in 2015 as Brent futures fell over 1% during Tuesday morning trading. WTI futures continued their slide in the U.S., nearing $47 per barrel as losses extended for the second day in a row.

The fall in oil prices coincides with an increase in supplies, as reserves reach record levels. For the week ending July 17, total crude oil and petroleum products rose 0.17% from the prior week, rising for the fifth week in a row. Despite the continued rise in petroleum stocks, domestic oil production has remained at historical levels, with 9.6 million barrels produced per day in the United States, according to the U.S. Energy Information Administration.

The EIA projects that supplies will remain historically high for the near future, while gasoline demand continues a steady rise. Total gasoline sales rose 2.4% on a year-over-year basis in the U.S., roughly in-line with national GDP growth projections.

BP, Statoil Troubles

The weak pricing for oil and continued oversupply have hurt all energy producers, and two large oil companies released extremely disappointing earnings figures this week.

British Petroleum reported a second-quarter loss due to a $9.8 billion charge related to the 2010 Gulf of Mexico oil spill, but the company also disappointed with net income of $1.3 billion, hit by both restructuring costs and weaker energy costs. The company also announced it would limit capital expenditure as it sees depressed oil prices persist.

Norwegian oil firm Statoil reported similarly disappointing figures, with revenues declining 12.8% on a year-over-year basis, which the company said was “primarily a consequence of lower oil prices.” Statoil’s revenue decline was less than half of the 28% fall in average liquids prices for the period from a year ago.

Statoil said it continues to divest in several oil producing projects. Like BP, Statoil is focusing on reducing capital expenditures and shrinking operations. “Reduced underlying operational expenses both on the Norwegian Continental shelf (NCS) and in our international operations, as well as reduced capital expenditures, demonstrate that our initiatives are effective. In June we announced adjustments to the company’s structure and operating model to further strengthen our competitiveness,” said Eldar Saetre, Statoil CEO.

Some analysts believe oil prices could fall further, even as both BP and Statoil signal that oil prices are likely to fall further. With weak manufacturing activity in China, where factories are seeing activity contracting and steel demand weakening to its lowest point in several years, there is a possibility that global demand for oil will fall on a year-over-year basis by the end of the year, even as production continues to rise.