U.S. oil prices sank to a fresh three-month low Tuesday as a glut of gasoline keeps weighing on the market.
U.S. oil for September delivery settled down 21 cents, or 0.5%, at $42.92 a barrel on the New York Mercantile Exchange. Six losing sessions out of the past seven have sunk it to its lowest settlement since April 25. Brent, the global benchmark, gained 15 cents, or 0.3%, to $44.87 a barrel on ICE Futures Europe, snapping a three-session losing streak.
Oversupply concerns have sent oil into retreat throughout July, reversing a five-month rally that had sent oil above $50 a barrel. U.S. refiners have overwhelmed even record demand, and saturated international markets have supplies backing up in the U.S., too, analysts said.
Despite those fears, U.S. drillers are showing signs they’re ready to ramp up production again. They added 15 active rigs to oil fields last week, the fourth consecutive week of increases. That is a major turning point, said Bjarne Schieldrop, commodities analyst from Sweden’s SEB bank.
“The revival in rig count mirrors what happened to the oil price rally in 2015,” which ended in late June and cut oil prices by half during the eight-month collapse that followed, Mr. Schieldrop said. “We had expected to see some delayed reaction in the return of shale oil due to elevated debt levels, but the data is telling a different story.”
Government data last week indicated that shale-oil production was essentially flat, and many expect the growing rig count is a precursor to production growth. Germany’s Commerzbank shared those concerns and cited data from Genscape indicating the U.S. could see stocks rise by 1 million barrels this week.
Analysts, brokers and traders surveyed by The Wall Street Journal expect crude stocks to fall by 1.6 million barrels. But they do forecast that the total levels of gasoline and other refined fuels rose by a combined 500,000 barrels.
That fits a pattern in which total petroleum stocks keep growing despite the slight declines in crude, confounding analysts that had predicted those total stocks would start falling, according to analysts at Citigroup Inc.Eventually that growing supply of products will back up and slow crude consumption, causing rising crude stocks, too, according to bearish analysts and traders.
“The theme of a product glut continues to send shivers through the crude complex,” said Matt Smith, director of commodity research at ClipperData. “After producing too much gasoline in recent months, refineries look set to dial back.”
Industry body the American Petroleum Institute released its inventory forecast Tuesday afternoon, which showed a 827,000-barrel decrease in crude supplies, a 423,000-barrel decline in gasoline stocks and a 292,000-barrel increase in distillate inventories, according to market participants.
Official data from the Energy Information Administration is due to follow Wednesday. A significant rise in U.S. oil inventory levels could add to the pressure to sell, which has already brought oil prices down by more than 14% in less than two months.
That selloff gained more steam this week from prices falling below the 100-day moving average, analysts said. It settled Monday afternoon below the 100-day moving average of $44.16 a barrel for the first time since April 4. That is key for technical traders that move on price momentum and are apt to interpret it as a sign prices will keep falling.
That is especially important now because of how central oil has been to financial markets for the past two years, said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. Many speculative traders–especially commodity traders who specialize in momentum-based trading–have flooded into the market to take advantage of severe, often lengthy moves down and up that have become common in oil. So when oil hits a key level for them, their large presence can lead to an outsize response in prices, Mr. Saucer said.
Falling below the 100-day moving average “is a pretty compelling signal,” he said. “Even if you don’t think the market is going a lot lower from here, it certainly raises the expectation that crude could fall toward 40 bucks.”
Gasoline futures settled up 1.16 cents, or 0.9%, at $1.3452 a gallon, but it is still 19% off its high of the year set in May. Diesel futures gained 0.32 cent, or 0.2%, to $1.326 a gallon, snapping a three-session losing streak.
Write to Timothy Puko at tim.puko@wsj.com and Kevin Baxter atKevin.Baxter@wsj.com
So why am I still paying almost $2.00 per gallon?