West Texas Intermediate oil fell to its lowest settlement in more than six years after Beijing devalued its currency, increasing concerns over oil demand in the world’s second largest oil consumer.
Light sweet crude for September delivery most recently fell by $2.07 or 4.14% to trade at $43.36 a barrel on the New York Mercantile Exchange. Based on the most active contracts, this is the lowest the US benchmark has traded in more than six years.
Brent futures, the global benchmark, tumbled by $1.22 or 2.5% to trade at $49.19 a barrel on the London based ICE Futures Exchange.
“Since July, every time oil gets a bid there is some news to squash the rally,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, told Market Watch.
“The yuan move also raises the fear that China’s slowdown is accelerating and that the country’s government might be panicking. It also raises fears that other countries will respond with competitive devaluations of their own,” he said.
The People’s Bank of China, the country’s central bank, on Tuesday morning moved to devalue its tightly controlled currency, the Yuan, following weaker than expected export and import data.
The Yuan registered its biggest one day decline in more than twenty years on the decision with most market analysts expecting the move to make commodities priced in dollars like oil more expensive in the country hence hurting demand.
It is expected to pressure crude prices further at a time when the commodity is struggling to record gains after recently entering the bear market.
“It…Suggests that the Chinese economy is still struggling to move out of its slowing pattern and into a growth spurt,” Dominick Chirichella, analyst at the Energy Management Institute, told the Wall Street Journal in a note.
“Overall it continues to suggest that the main oil growth engine of the world is not going to come to the rescue of the oversupplied global oil market anytime soon.”
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