London: World oil prices collapsed today to the lowest point in 12 years, pummelled by fresh China-driven markets turmoil and the chronic supply glut.
New York’s West Texas Intermediate for February delivery hit USD 32.10 a barrel in early morning deals, striking the weakest level since late December 2003.
European benchmark Brent North Sea crude oil for February slumped to USD 32.16, a low last seen on April 7, 2004.
“Oil prices are sinking alongside Chinese equities over the same concern about China’s economy,” said CMC Markets analyst Jasper Lawler.
Oil slumped once more today after the People’s Bank of China weakened the yuan currency to the lowest since March 2011.
Markets were rattled after China suspended stock market trade for the second time this week, after Shanghai equities fell more than seven percent.
Global equities tumbled today as investors feared for the global economy on signs of a dramatic slowdown in major crude consumer China.
“The price slide was triggered by further shocking news from China,” said Commerzbank analyst Carsten Fritsch.
The market had already fallen heavily yesterday, with Brent breaching USD 35 on fears that the ongoing row between key producers Iran and Saudi Arabia would dim prospects for output cuts.
Fritsch added that oil was hit also by official data yesterday revealing a 10.6 million-barrel increase in US gasoline stocks — the biggest weekly rise since 1993.
US gasoline or petrol inventories soared last week, signalling weak demand and stoking supply glut concerns.
The outlook for China is meanwhile crucial for oil prices because the nation is the world’s second biggest economy and key driver of commodities consumption.
The country’s central bank today weakened the value of its yuan currency by 0.51 percent against the dollar.
The drop was the biggest since August when the value was cut by five percent in a week — sparking weeks of global market turmoil over worries Beijing did not have a handle on its economic crisis. The yuan is now at its weakest in five years.
Demand for crude tends to fall when the US dollar is stronger against currencies of purchasing countries.
In more downbeat news, the World Bank lowered its global economic growth forecasts citing emerging market weakness, which cast doubt on the strength of future oil demand, dealers said.
The bank cut its forecast for global economic expansion in 2016 by 0.4 percentage point to 2.9 percent, though that is still faster than 2015’s sluggish 2.4 percent.
“The cut in global growth forecasts by the World Bank is certainly not a positive for oil demand and the supply glut shows no signs of bullishness for the price either,” noted London Capital Group analyst Brenda Kelly.
In late afternoon trade today, Brent prices stood at USD 33.93 a barrel, down 30 cents from yesterday’s closing level.
US benchmark West Texas Intermediate for February shed 58 cents to stand at USD 33.39.