Oil prices fell towards six-year lows on Monday after data showed Japan’s economy contracted and producers in the United States added drilling rigs for a fourth straight week despite a recent rout in prices.
Japan’s economy, the world’s third biggest oil consumer, shrank in the second quarter from a year earlier, adding to fears that slowdowns in Asia’s biggest economies will weigh on oil demand.
The global oversupply picture was exacerbated by another weekly jump in U.S. oil rig additions, hinting at growing production, and news that Oman produced a record-breaking 1 million barrels a day in July.
U.S. crude, or West Texas Intermediate (WTI), for September was trading 70 cents lower at $41.80 a barrel at 0830 GMT, close to its lowest level in more than six years.
Brent for October was down 60 cents at $48.59 a barrel, still a few dollars shy of its six-year low of $45.19. The September contract expired on Friday.
“The oversupply story remains well intact, which fuels the bearish sentiment,” said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.
Production by the Organization of the Petroleum Exporting Countries is running well above demand filling stockpiles worldwide. Iran is expected to increase its oil exports once Western sanctions are lifted after ratification of a recent nuclear deal.
Many analysts expect prices to remain depressed as bearish factors hinting at sustained oversupply are set to persist.
“The end of the summer driving season and the start of refinery maintenance season will weigh on near-term demand and pressure prices,” said Societe Generale oil analyst Michael Wittner.
“Oversupply, high stocks, and seasonal weaknesses are outweighing record demand growth,” he added.
Demand for crude oil is set to fall in the next few weeks as refineries start annual maintenance. A number of European refineries will close for maintenance in September and October, including Royal Dutch Shell, Statoil and Total .
Citigroup Inc has cut its crude oil price outlook citing weak market fundamentals, including an increased supply from OPEC and challenging demand growth in China and emerging markets.
The Wall Street bank lowered its base case Brent price forecasts to $54 per barrel for 2015 and $53 in 2016 from $58 and $63 respectively.