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Oil prices poised to slide, crude glut continues

Reports of an oil recovery earlier this summer may have been overstated.

Prices are on the slide again and some are warning a big correction is underway.

Stronger oil prices in the spring were the result of slowly depleting supplies.

U.S. shale output declined during a pullback in drilling and the Alberta wildfires reduced oil sands output by more than a million barrels a day.

But production has picked back up and it’s diluting the market again as demand continues to fall.

Roger McKnight, Chief Petroleum Analyst with En Pro International, says there will be a significant drop in crude prices in September.

“That’s the shoulder period when demand for gasoline and diesel is at an ebb because there’s no low temperatures for heating oil and the cars have come off the road after summer vacation,” he explained.

Some oil patch companies have been reporting substantial second-quarter loses.

But there are executives who express optimism, noting that heavy cost-cutting over the past 18 months is paying off in efficiency gains.

Some have even started to put drilling money back into their plans but McKnight says there isn’t anywhere for it to go, especially in the U.S.

“There strategic petroleum reserve is absolutely full at about 700 million barrels and they have the highest inventory of crude oil they’ve had in 86 years,” he said.

A report from Morgan Stanley warns the rebalancing of supply and demand could delay optimistic estimates for this year until the middle of 2017 and McKnight agrees.

One bright spot is natural gas prices which has jumped thanks to a demand to feed air conditioners in major markets sweltering under record heat this summer.