NEW YORK: Oil prices fell on Monday with U.S. crude near 6-1/2-year lows after No. 3 consumer Japan suffered an economic contraction in the second quarter and China’s slowdown continued to weigh on oil market sentiment.
A stronger dollar after the fastest pace of growth in U.S. industrial output in eight months also made greenback-denominated commodities, including crude, less affordable for holders of other currencies such as the euro.
U.S. crude futures were 5 cents down at $42.45 by 11:30 a.m. EDT (1530 GMT). The intraday low was $41.64, versus Friday’s low of $41.35, the weakest front-month price since March 2009.
Expiring options trade in U.S. crude bumped up the market’s volume to above 160,000 lots by midmorning, versus Friday’s total of about 300,000 lots.
Futures of Brent, the global crude benchmark, were 10 cents lower at $49.09 a barrel. It earlier hit a session low of $48.35, about $3 above its January low of $45.19.
Japan’s economy shrank at an annualised pace of 1.6 percent in April-June as exports slumped and consumers cut back spending, adding pressure on Prime Minister Shinzo Abe to step up his policy drive to lift the economy out of decades of deflation.
China fixed its exchange rate slightly higher for the second day running, after last week’s surprise devaluation that sliced 3 percent off the yuan and sparked speculation about the impact on global currencies.
“The general talk in the market is about the continued ripple effect from the Chinese devaluation. How it may affect other nation’s economies linked to China,” said David Thompson of Washington-based energy-specialized commodities broker Powerhouse. Oil has fallen around 30 percent since June.
U.S. crude has fallen for seven weeks in a row, settling down again last week after another weekly rise in U.S. oil rig additions on Friday that hinted at growing production.
While Brent has fared relatively better versus the selloff in U.S. crude, it also has been pressured by data showing a continuous glut in global oil supply, such as Oman’s record-breaking production of 1 million barrels per day in July.
Demand for crude is set to fall further in the next few weeks as U.S. and European refineries start maintenance for autumn.
Money managers and hedge funds have cut their combined net long positions in U.S. crude to 2010 lows and in Brent to December 2014 lows, in an apparent growing consensus that oil prices will likely remain low for a while, data shows.
