Crude below $33 as oil prices fall to lowest in over a decade
London (Jan 7) Oil prices plunged to levels not seen in more than a decade on Thursday, hammered by the continuing turmoil in China, the world’s second biggest oil consumer.
China’s stock market tumbled and suffered its shortest trading day in its 25-year history, dragging down bourses around the world. That added to concerns about its crude demand at a time of continuing global glut of the commodity.
Brent crude LCOG6, -3.27% , the global oil benchmark, fell 2.8% to $33.30 a barrel on London’s ICE Futures exchange. Earlier in the session, it fell to as low as $32.16 a barrel, its lowest price since April 2004.
On the New York Mercantile Exchange, West Texas Intermediate futures CLG6, -3.56% were trading down 3.3% at $32.83 a barrel. Earlier, WTI slid to $32.10 a barrel, the lowest level since December 2003.
Chinese markets stopped trading about 30 minutes after they opened, as a newly installed mechanism to limit volatility was triggered for the second time this week. The benchmark Shanghai Composite Index SHCOMP, -7.04% ended the dramatically brief trading day down more than 7% at 3125.00.
“Chinese equity markets temporarily halting again was like adding oil to fire, exacerbating the oil price rout,” said Daniel Ang, oil analyst at Phillip Futures.
The market turmoil, coupled with a falling currency and a string of weak economic data in recent months, is yet another sign of a slowing in the Chinese economy.
China consumes around 12% of the world’s oil, second only to the U.S. In the past year, China’s demand has held up as the government and the local refiners took advantage of cheap oil prices. However, some analysts say the upward trend in China’s demand growth could taper as Chinese manufacturing activity falters.
The fears about the slowdown in China are adding to worries about the persistent oversupply and increasing geopolitical tensions which have dragged down crude at the beginning of the year.
“When the fundamentals of the oil market are weak, as they are now, prices are vulnerable to any indication of slowing demand,” says Vyanne Lai, an energy analyst at National Australia Bank.
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For more than a year, global oil prices have been encumbered by unrelenting oversupply as major oil producers have refused to curtail output for the sake of market share. The continuing tension between Saudi Arabia and Iran, both members of the Organization of the Petroleum Exporting Countries, is also fueling fears that a concerted effort to cut production within the cartel is even more unlikely.
Inventory data out of the U.S. on Thursday also added to the bearish mood on the market. Despite a 5.1 million-barrel decline in U.S. crude stockpiles last week, gasoline stockpiles registered their biggest weekly increase since 1993, rising by 10.6 million barrels last week, according to the U.S. Energy Information Administration.
U.S. production also stayed robust, above 9.2 million barrels a day last week. While production has decreased in recent months, it is still higher compared with the previous year.
Some analysts see oil falling even lower, with technical trading likely to push it below $30 a barrel.
“If oil closes below $36 a barrel this week, it will be a very bearish technical signal pointing to a lower trading range for oil, with a base forming as low as $20 in the coming weeks,” said Marina Petroleka, head of energy research at BMI Research.
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Nymex reformulated gasoline blendstock RBZ6, -1.77% — the benchmark gasoline contract — fell 1.7% to $1.4 a gallon. ICE gasoil changed hands at $316.25 a metric ton, down $7 from the previous settlement.