NEW YORK-Oil prices plunged to fresh six-year lows Monday on concerns about a slowdown in Chinese demand and growing crude-oil supplies in the U.S. Asian stocks dived to three-year lows on Monday as a rout in Chinese equities gathered pace, hastening an exodus from riskier assets.
The Shanghai Composite fell by 8.5 percent, and that has sent shockwaves around the world.
Iran Oil Minister Bijan Zanganeh stated on Sunday that an emergency OPEC meeting may be “effective” in oil price stabilization, supported by an earlier call for such a meeting from Algeria. China is the world’s largest consumer of commodities, and second-largest consumer of oil after the U.S.
Many analysts on the street believe that the current plunge in oil prices has mostly been on the back of the boom in production outpacing global oil demand.
Less than an hour before the close of trading, U.S. oil was down $1.25 to $40.07.
Last week the Caixin preliminary purchasing manager’s index (PMI) for China in August, which indicates factory orders, fell to 47.1 the lowest since March 2009.
U.S. crude for October delivery CLc1 was 50 cents lower at $40.92 a barrel by 1230 GMT. Amid market turmoil over China’s faltering economy, WTI shed 4.8 per cent last week and Brent slumped 7.3 per cent. It was WTI’s eighth consecutive weekly decline, the longest stretch of weekly losses in 29 years, and Brent’s seventh loss in eight weeks. Total volume was 43 percent above the 100-day average.
“With the biggest of these, China, now increasingly hitting the breaks and indicating it would like to see its currency lower, this is thereby raising the cost of imports commodities, not least oil and industrial metals which have been feeling the brunt of this change”.
Nearly all oil companies, from Exxon Mobil to BP PLC, have cut spending on exploration in anticipation of a prolonged period of lower prices.
While energy investors feel the pain, U.S. drivers are saving an average of 80 cents on each gallon of gasoline they buy at the pump. The country will seek to regain oil sales regardless of prices, Zanganeh said last month after negotiators reached a deal with world powers offering sanctions relief.
Also on Monday, data provider Genscape Inc. told clients that crude-oil supplies in Cushing, Okla., fell slightly in the week ended Friday but rose in the second half of the week, according to a market participant who viewed the report.
“We’re about 1.5 million barrels a day oversupplied right now”, Paul Sankey, an energy analyst at Wolfe Research LLC, said on Bloomberg Radio. That’s the highest level since May 1.
OPEC delegates and industry sources say it is hard for Saudi Arabia to reverse the policy it championed, particularly at a time when both Iran and Iraq are gearing up to boost their crude exports.