Oil Tumbles to Fresh Lows on China Market Turmoil
August 24 2015 - 12:07AM
Dow Jones News
By Eric Yep
Oil prices tumbled to fresh lows in Asian trade Monday, in line
with the selloff in wider financial markets, as investors were
shaken by the rout in Chinese equity markets and worries about
global economic growth.
Brent crude, the global oil price benchmark, dropped below the
$45 a barrel mark for the first time since March 2009. It is now
trading around 56% lower from its year-high of $103.19 a barrel
reached in August last year.
Oil prices have been under pressure for several months due to
oversupply concerns, but the slump deepened in recent weeks on
fears of a sharp slowdown in the Chinese economy and its impact on
global markets. The recent devaluation of the yuan also added to
market uncertainly, stoking concerns that China's oil and
commodities imports could fall further.
On the New York Mercantile Exchange, light, sweet crude futures
for delivery in October traded at $39.70 a barrel at 0203 GMT, down
$0.75 in the Globex electronic session. October Brent crude on
London's ICE Futures exchange fell $0.73 to $44.73 a barrel.
Equity markets in China were sharply lower again Monday, wiping
out all of this year's gains, following a sharp decline in global
equity markets last week. The Shanghai Composite Index was over 8%
lower in morning trade.
China is the world's largest consumer of commodities, and
second-largest consumer of oil.
Its demand for most commodities has fallen sharply since the
world's second-largest economy started showing signs of slowing
growth. But its demand for oil has held up much stronger than other
commodities, helped by stockpiling. A collapse in Chinese oil
imports would be catastrophic for the oil market, where prices are
already low.
"Despite poor headline macro data, most China oil demand data
points remain resilient in China through July," Adam Longson, head
of commodity research at Morgan Stanley said. China's crude-oil
imports in July rose 1.7 million barrels a day from a year earlier
to 7.4 million barrels a day, near record levels.
Oversupply remains the overarching factor weighing global crude
prices with record oil production from key producers like Saudi
Arabia and expectations of higher Iranian oil exports on the back
of its recent nuclear deal.
Nymex oil futures were trading below the $40 a barrel mark, the
lowest in nearly six and a half years, in Asian trade Monday. U.S.
oil prices are being dragged lower as its shale-oil producers
remain surprisingly resilient in the face of low oil prices. The
latest U.S. oil rig-count rose by 2 to 674, according to oil
consulting firm Baker Hughes.
Most market participants are still of the view that the latest
fall in oil prices is being driven by negative market sentiment and
is overdone from a supply-demand perspective. "While oil
fundamentals aren't strong, physical markets do not corroborate the
substantial weakness" in the current front-month contract price,
Mr. Longson said.
But the oil market is still struggling to find a near-term
upside for prices.
"Global growth concerns, coupled with the onset of refinery
maintenance season, means oil prices may remain under pressure in
the absence of a firm bullish catalyst," Societe Generale said in a
weekend note.
Nymex reformulated gasoline blendstock for September--the
benchmark gasoline contract--fell 18 points to $1.5431 a gallon,
while September diesel traded at $1.4460, 164 points lower.
ICE gasoil for September changed hands at $439.75 a metric ton,
down $3.00 from Friday's settlement.
Write to Eric Yep at eric.yep@wsj.com
(END) Dow Jones Newswires
August 23, 2015 23:52 ET (03:52 GMT)
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