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Why oil prices will head lower

Oil prices are heading lower and could fall into the $30s before the latest shakeout ends sometime during the fall months.

But analysts say this sell-off is nothing like the one that took West Texas Intermediate crude to $26 earlier this year, and some of the factors behind it are seasonal.

West Texas Intermediate oil futures are down 11 percent so far this month, after rallying above $50 in the spring. WTI was trading settled a half percent lower at $42.92 per barrel Tuesday, after breaking below its 100-day moving average of $44.25 on Monday.

The world remains oversupplied with crude oil, but the fact that it has become very oversupplied with gasoline is currently worrying the market.

"The gasoline inventories are 10 percent above a year ago level, and that's feeding back into crude," said Greg Priddy, director of global energy at Eurasia Group. The real fear is that the demand for crude will drop even further once refineries go offline as they normally do in early fall for routine maintenance ahead of winter fuel refining.

"What refining margins are telling us is there might be some weakness in product demand. I think some of the fears out there are a bit overblown. If I look at product inventories, yeah, they're high, but they've been high for months. Maybe markets are waking up to it. It's not like we've taken a sudden turn for the worse," said Michael Wittner, head of oil research at Societe Generale.

U.S. refineries continue to produce more gasoline than drivers can use. While the U.S. can export fuel, the whole world has plenty of refined product.

Wittner said some refineries on the East Coast have already reduced runs, perhaps signaling an earlier maintenance season than usual because of the gasoline...


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