U.S. crude breaks below $40 as oil ends down 4 pct on glut

By Barani Krishnan

NEW YORK (Reuters) - U.S. crude tumbled below $40 per barrel on Monday for the first time since April, as oil prices settled down nearly 4 percent on heightened worries of a crude glut despite peak summer fuel demand.

A near 15-percent slump in U.S. crude prices in July, the worst monthly loss in a year, also triggered liquidation as trading began for August.

Monday's slide in crude prices also came after Marathon Petroleum unexpectedly shut its lone crude unit and an associated unit at its 212,000 barrel-per-day refinery in Robinson, Illinois, at the weekend, according to a source. The cause and duration of the outage were not clear.

 

"It's stop-loss technical selling combined with sheer liquidation by those fearing we'll soon be swimming in oil again," said Phil Davis, trader at PSW Investments in San Diego, California. "We've had crude builds during the summer, when we were supposed to be having runaway draws from record driving."

U.S. West Texas intermediate (WTI) crude plumbed $39.86, its lowest since April 20, before settling at $40.06, down $1.54, or 3.7 percent.

Brent crude closed down $1.39, or 3.2 percent, at $42.14 a barrel, after a session low of $41.87.

Not all oil statistics are bearish. A Reuters poll on Monday showed U.S. crude stockpiles may have fallen last week for the first time in 10 weeks.

Still, market focus was on reports such as the Reuters survey on Friday which showed that output from the Organization of the Petroleum Exporting Countries likely rose in July to its highest in recent history as Saudi Arabia pumped at near optimum level, Iraq raised production and Nigeria boosted crude exports.

Other data from last week showed the United States added 44 oil drilling rigs in July, the most for a month in two years, intensifying concerns that global production could again get to unmanageable levels like in 2014-2015.

Crude prices remain nearly 55 percent above 12-year lows of $26 to $27 hit in the first quarter.

But WTI and Brent have also slipped into bear market territory since last week after losing more than 20 percent from the 2016 highs above $50 that were hit in June.

Hedge funds slashed their positive bets on U.S. crude to a five-month low during the week to July 26, while holding a record net short, or bearish position, on gasoline, data showed on Friday.

Barclays noted that Brent averaged $46.50 a barrel so far into the third quarter and could fall further.

"With the macroeconomic picture worsening and Saudi Arabia unlikely to exhibit much restraint as Iran seeks incremental market share, refineries are going to find themselves in the line of fire," the British bank said in a research note.

Iran's oil minister concurred the market was oversupplied but said balance between supply and demand will be restored, Iranian state television reported.

(Additional reporting by Nina Chestney in LONDON and Henning Gloystein in SINGAPORE; Editing by Marguerita Choy, Steve Orlofsky, Frances Kerry)