Oil edged lower on Monday as weak economic data from Japan and the United States fuelled concerns about slowing economic growth and tepid energy demand that offset lift from a weaker dollar. Oil futures' recent correlations were tested on Monday, with a weaker dollar unable to lift oil and Wall Street's intraday strength unable to push to a higher settlement.
US crude for September delivery fell 15 cents to settle at $75.24 a barrel. Crude dropped as low as $74.86, the lowest since July 13. The early intraday peak was $75.95. Expiring September crude oil options on the New York Mercantile Exchange may provide some volatility on Tuesday, ahead of the crude oil contract's expiration on Friday.
On Monday, front-month ICE September Brent crude expired, falling 26 cents to go settle at $74.85 a barrel. News that Japan's economy expanded by a mere 0.1 percent in the second quarter, below forecasts, weighed on financial markets and was followed later by weak US data. A gauge of manufacturing in New York state rose in August but the reading was below expectations and US home-builder sentiment unexpectedly fell in August to its lowest level in nearly 1-1/2 years.
US Treasury prices rose, with the 10-year yield hitting a fresh 17-month low and the price of the 30-year bond rising two points as weak economic growth around the world spurred talk of price deflation. Oil trading was choppy, volume was low and the range relatively narrow. Crude trading volume on the NYMEX was just over 400,000 Monday afternoon in New York, the lowest since July 26, when crude also seesawed and ended unchanged.
Trading volume was above 800,000 several days last week as prices plummeted, with industry sources noting that a 6 percent slide like last week's is often amid high volume as traders liquidate length and new short positions are taken. Weak economic data and rising US fuel inventories, ample crude stocks and tepid demand have made investors pessimistic about the outlook for oil demand.
Rising gasoline stockpiles have sent US gasoline futures lower, and rising inventories also have pressured benchmark distillate heating oil futures. Both were below $2 a gallon. "Nowhere across the complex has this fundamental deterioration been more evident than within the gasoline market," Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois said in a note.
"Gasoline stocks have increased about 4 million barrels since the beginning of July, a contrast to seasonal tendencies that have historically favoured a 5-6 million barrel stock draw." Crude oil and gasoline stocks were expected to have fallen last week, by 1.1 million and 200,000 barrels, respectively, a preliminary Reuters survey of analysts showed on Monday. Distillate stocks were expected to be up.
In addition to economic indicators and oil stockpiles, oil traders also continued to eye tropical weather threats. The remnants of Tropical Depression 5 strengthened in the Gulf of Mexico and had a 60 percent chance of redeveloping into a tropical depression over the next 48 hours, the US National Hurricane Center said on Monday. But producers had not cut back production ahead of the weather threat on Monday.