US oil prices fell towards six-year lows on Tuesday after stock markets tumbled in China, the world's largest energy consumer, adding to worries about global fuel demand at a time of heavy oversupply.
Chinese stocks fell 6 per cent on Tuesday as the yuan weakened against the dollar, raising fears that Beijing may further devalue the currency. Such a move could decrease China’s consumption and import levels.
Industrial metals, including copper, also traded near six-year lows, adding to bearish market sentiment.
“That is dragging oil lower - it was in bearish territory to start with,” SEB chief commodity analyst Bjarne Schieldrop said.
US crude futures were 35 cents weaker at $41.52 a barrel by 0850 GMT, close to their lowest since early 2009. North Sea Brent was at $48.39 a barrel, down 35 cents but still some way from its 2015 low of $45.19.
Both crude oil benchmarks have more than halved in value over the last year. They rallied earlier in the year but are now almost a third below their last peak in May. Data shows many speculators have taken huge bets on further falls.
“Fundamentals suggest downside risks still remain in key markets - particularly iron ore and crude oil - in the months ahead,” ANZ bank said, expecting US stockpiles to rise in coming months as refiners reduce operations for maintenance.
Many oil traders are positioning themselves to profit from a further drop in US prices, buying “puts” - options to sell contracts once they have fallen to a particular level - at prices as low as $35 and even $30 a barrel.
“The amount of queries we’ve received recently about leveraging bets on further price falls has been astonishing,” one broker said.
Underscoring the bearish sentiment, hedge funds cut their net long holdings of Brent crude futures for a fourth straight week, exchange data showed on Monday.
US commercial crude oil and gasoline stockpiles likely decreased last week while distillate inventories rose, a preliminary Reuters survey showed on Monday, ahead of reports from the American Petroleum Institute and the U.S. Energy Information Administration.
The long-term outlook is bearish, said BMI Research, part of the Fitch ratings agency. It forecast “oil prices will remain anchored until 2018” with global supply growth likely to outstrip the growth in global consumption for the next two years.
Reuters
