Oil Flirts With $30-a-Barrel Level
Source: Dow Jones News
Crude-oil prices fell harder in Asia on Tuesday as traders built up short positions in the midst of crumbling confidence in the Chinese economy and a growing global glut.
The benchmark West Texas Intermediate fell into the $30 range, hovering around a 12-year low, extending losses after the more than 5% decline overnight.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February traded at $31.09 a barrel at 0343 GMT, down $0.32 in the Globex electronic session. February Brent crude on London's ICE Futures exchange fell $0.32 to $31.23 a barrel. Both grades have plunged close to 17% so far this year.
Rising volatility in the Chinese stock market has heightened fears of a steeper slowdown in the world's second-largest economy. China's stock market suffered its shortest trading session in its 25-year history Thursday when prices fell 7%, triggering a stop-loss mechanism that suspended trading for the day.
The stock-market tumble came after the People's Bank of China set the daily yuan reference-exchange rate against the U.S. dollar 0.5% lower, marking the largest adjustment toward yuan weakness since mid-August.
Analysts said the government's intentional yuan weakening signals China's growing concern over its export growth, spurring more bearish speculation on the country's crude demand.
"It is hard to pick a bottom [for oil price] right now because the fundamental is so weak. The erratic actions by the Chinese government to manipulate the yuan is sending jitters that the government is unsure what direction their forex policy should be," said Vyanne Lai, an analyst at National Australia Bank.
Gordon Kwan, the regional head of Nomura oil and gas research, called the situation a "crisis of confidence" in the Chinese economy.
Meanwhile, Iranian oil is expected to return to the market after the sanction on its crude export is lifted this quarter. Iran has said it could export at least 500,000 barrels of oil as soon as the ban is repealed.
"The issue of growing oversupply has been plaguing the industry for more than a year. Although U.S. shale production is slowing, it is still not slowing down fast enough for demand to catch up," a Singapore-based trader said.
The growing strength of the U.S. dollar is also causing traders to abandon bets. Morgan Stanley said Brent oil may fall as low as $20 a barrel on an appreciating dollar---oil prices could decline 10%-15% if the currency gains 5%. Goldman Sachs also expects global oil to head toward $20 a barrel before producers decrease output.
However, the more bullish camp said there is little room for prices to drop further and that a rebalancing in supply and demand is around the corner.
"Short positions for producers [commercial traders] have reached a low, which could suggest that they are becoming more exposed for future months. This could mean that we may start to see further corrections to oil production as producers start to feel the pinch of low prices," said Daniel Ang, a Phillip Futures energy analyst.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
January 11, 2016 23:45 ET (04:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Source: Dow Jones News
Crude-oil prices fell harder in Asia on Tuesday as traders built up short positions in the midst of crumbling confidence in the Chinese economy and a growing global glut.
The benchmark West Texas Intermediate fell into the $30 range, hovering around a 12-year low, extending losses after the more than 5% decline overnight.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February traded at $31.09 a barrel at 0343 GMT, down $0.32 in the Globex electronic session. February Brent crude on London's ICE Futures exchange fell $0.32 to $31.23 a barrel. Both grades have plunged close to 17% so far this year.
Rising volatility in the Chinese stock market has heightened fears of a steeper slowdown in the world's second-largest economy. China's stock market suffered its shortest trading session in its 25-year history Thursday when prices fell 7%, triggering a stop-loss mechanism that suspended trading for the day.
The stock-market tumble came after the People's Bank of China set the daily yuan reference-exchange rate against the U.S. dollar 0.5% lower, marking the largest adjustment toward yuan weakness since mid-August.
Analysts said the government's intentional yuan weakening signals China's growing concern over its export growth, spurring more bearish speculation on the country's crude demand.
"It is hard to pick a bottom [for oil price] right now because the fundamental is so weak. The erratic actions by the Chinese government to manipulate the yuan is sending jitters that the government is unsure what direction their forex policy should be," said Vyanne Lai, an analyst at National Australia Bank.
Gordon Kwan, the regional head of Nomura oil and gas research, called the situation a "crisis of confidence" in the Chinese economy.
Meanwhile, Iranian oil is expected to return to the market after the sanction on its crude export is lifted this quarter. Iran has said it could export at least 500,000 barrels of oil as soon as the ban is repealed.
"The issue of growing oversupply has been plaguing the industry for more than a year. Although U.S. shale production is slowing, it is still not slowing down fast enough for demand to catch up," a Singapore-based trader said.
The growing strength of the U.S. dollar is also causing traders to abandon bets. Morgan Stanley said Brent oil may fall as low as $20 a barrel on an appreciating dollar---oil prices could decline 10%-15% if the currency gains 5%. Goldman Sachs also expects global oil to head toward $20 a barrel before producers decrease output.
However, the more bullish camp said there is little room for prices to drop further and that a rebalancing in supply and demand is around the corner.
"Short positions for producers [commercial traders] have reached a low, which could suggest that they are becoming more exposed for future months. This could mean that we may start to see further corrections to oil production as producers start to feel the pinch of low prices," said Daniel Ang, a Phillip Futures energy analyst.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
January 11, 2016 23:45 ET (04:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
