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Oil Slides to 12-Year Low on China Turmoil as $30 Gets Closer

Image: Oil Slides to 12-Year Low on China Turmoil as $30 Gets Closer
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Thursday, 07 Jan 2016 07:59 AM

U.S. oil futures in New York slid to the lowest in 12 years as turmoil in China’s markets pushes crude closer to $30 a barrel.

West Texas Intermediate slid as much as 5.5 percent Thursday on concern that an economic slowdown in the world’s biggest commodity consumer is worsening. China’s central bank reduced the onshore yuan’s fixing to the lowest since March 2011, triggering a selloff that led to the closure of Chinese stock exchanges. Brent oil will slump to $30 in the next 10 days, according to Nomura Holdings Inc., while UBS Group AG sees an oversupply pushing prices even lower.

“Most people are probably surprised that oil prices would go to this level,” Statoil ASA Chief Executive Officer Eldar Saetre said in an interview in Oslo. “It could go even lower, and it just underlines the uncertainty.”

Oil capped the biggest two-year loss on record in 2015 as the Organization of Petroleum Exporting Countries effectively abandoned output limits amid a global glut. Stockpiles at Cushing, Oklahoma, the delivery point for U.S. benchmark crude, rose to a record while nationwide stockpiles remain about 100 million barrels above the five-year average, according to Energy Information Administration data.

WTI for February delivery fell as much as $1.87 to $32.10 a barrel, the lowest level since Dec. 29, 2003, on the New York Mercantile Exchange. Prices were at $32.86 a barrel at 7:01 a.m. local time. The contract lost 8.3 percent over the previous three days to close at $33.97 on Wednesday. The most-traded option on Nymex gave holders the right to buy February futures at $36, ahead of contracts to sell WTI for that month at $32 and $30.

Chinese Demand

Brent for February settlement fell as much as $2.07 to $32.16 a barrel on the London-based ICE Futures Europe exchange. The contract dropped 6 percent to $34.23 on Wednesday, the lowest close since June 2004. The European benchmark was at a premium of 53 cents to WTI.

The global economy will sputter along this year as China’s slowdown prolongs a commodity slump, the World Bank said Wednesday. The Washington-based development bank lowered its forecast for 2016 growth to 2.9 percent, from a 3.3 percent projection in June, according to its bi-annual Global Economic Prospects report.

“Crude oil was in a bearish bias, so to reverse this trend you need to have some strong input, so the global rout in all assets isn’t helping,” Olivier Jakob, managing director at Petromatrix GmbH, said by phone. “There’s no other input that can really reverse the trend right now in crude oil.”

The People’s Bank of China on Thursday reduced the yuan’s fixing by 0.51 percent to 6.5646, the weakest since March 2011 and a reminder of the August cut that sparked financial-market turmoil. Trading on the CSI 300 Index was suspended after it plunged more than 7 percent.

Cushing Capacity

“Clearly the economic concern is a factor, but that doesn’t really explain everything,” said Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at UBS’s wealth- management unit in Hong Kong. “There is a weak backdrop given that the market is oversupplied. If there is continued build in inventory, the market will not be pleased, and if the market loses patience then the next step is a bit below $30.”

Supplies at Cushing, Oklahoma, the largest U.S. crude- storage hub, expanded for a ninth week to 63.9 million barrels last week, the longest run of gains since April, according to the EIA data released Wednesday. The hub has a working capacity of 73 million barrels. Nationwide stockpiles declined by 5.1 million barrels to 482.3 million.

OPEC Price

The average price for which members of the Organization of Petroleum Exporting Countries sell their crude fell below $30 a barrel for the first time since 2004, while spot prices for Western Canadian Select fell as low as $19.81 a barrel on Wednesday, the lowest since tracking began in 2008, according to data compiled by Bloomberg.

“Oil in the medium term is going back north of $60,” Jason Gammel, a London-based oil industry analyst with Jefferies Group LLC, said in an interview with Bloomberg TV. Low oil prices will cut production and help balance supply and demand later this year, he said.

Oil prices have largely ignored geopolitical events this week amid a supply glut, which cushions against potential disruptions as tensions between Saudi Arabia and Iran escalate. Iran said Thursday that its embassy in Yemen was damaged by a missile attack from Saudi Arabia.


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2016-59-07
Thursday, 07 Jan 2016 07:59 AM
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