WTI Crude oil prices were seen trading at 4-month lows near the $40 handle, briefly sliding to lows below $40 at one point. Oil prices continue to extend their declines now into two consecutive weeks. Last Friday, the US oil rig data showed new production was seen slightly higher in June, rising by two to a total of 1407. The declines have put an end to the bullish bets on Oil prices seen since earlier this year. With the temporary factors such as Canadian wildfires, oil strikes at key production areas receding, investors shifted focus back on the oversupply in the market. At $40 a barrel, oil prices are down over 20% since the highs of $50 recorded earlier this year.

Gao Jian, an energy analyst at SCI International, said, “The world is so oversupplied and the pace of rebalance is so slow that even geopolitical factors such as the ongoing civil strife in Nigeria are not enough to offset the fall in prices.”

Adding to the bearish bias was the speculative positioning in the oil markets. Matt Smith from ClipperData said, “Speculators increased their shorts by the biggest volume on record… for WTI crude…, dragging the net long position in WTI to its lowest since February.” He added that gasoline positioning was also near record net short positions.

WTI Crude Oil Institutional positioning near record net short (Source: Freecotdata)

Still, some analysts remain hopeful that Oil will resume its rally. Michael Hsueh from Deutsche Bank said, “Progress will be slow. The crude glut will take a long time to dissipate, meaning only gradual price gains.” Hsueh said that the oil markets are still in the process of rebalancing, and he says that there will not be a sustainable deficit at least until the second quarter of 2017. Hsueeh maintains a bullish view on oil and expects the price to rise to $53 a barrel.

Earlier on Monday, Saudi Arabia’s Saudi Aramco announced price cuts to its Asian customers. The company cut its official selling price of the Arab light grade for September by $1.30 a barrel, which was seen as the largest price cut since October last year. The price cut has also given rise to speculation that Saudi Arabia was back chasing market share, which it previously claimed that it wasn’t a priority. The company had increased its selling price three times between April and July.

Saudi Aramco’s Amin Nasser, the chief executive, told Reuters earlier in July that the company wasn’t worried about its rivals (namely, Iran, Iraq, and Russia) gaining market share in the Asian region and brushed aside concerns that the company was growing increasingly worried about losing market share to other key players.

The oil markets will be looking to the weekly API inventory report today followed by the official inventory report from the EIA later in the week.

WTI Crude Oil futures contract for September delivery (CL_6U) is currently up 1.25% on the day, trading at $40.57 a barrel.

WTI Crude Oil Futures – September Delivery CL_6U: $40.57