[SINGAPORE] Brent crude prices fell to fresh 11-year lows on Thursday as fresh concerns over China's economy added to huge storage overhangs, near-record production and slowing demand that have already pummelled prices.
China accelerated the devaluation of the yuan on Thursday, sending currencies across the region reeling and domestic stock markets tumbling, as investors feared the Asian giant was kicking off a virtual trade war against its competitors. Trading on its stock markets was suspended for the rest of the day.
Global oil prices have crashed 70 per cent since mid-2014 as near record output from major producers like the Organization of the Petroleum Exporting Countries (Opec), Russia and North America create a ballooning overhang that has left storage tanks around the world struggling to cope with the excess oil.
At the same time, demand is slowing, especially in Asia where the biggest economy and energy consumer, China, is seeing the slowest economic growth in a generation.
Global benchmark Brent crude futures fell to new 11-year lows of US$33.09 per barrel on Thursday, undercutting a low from a day earlier, although prices edged back to US$33.52 per barrel by 0213 GMT.
Traders said a dispute between Saudi Arabia and Iran, which might normally be seen as posing a risk to oil supplies, may actually be bearish as it all but eliminates cooperation over production between the two Opec members. "Neither one of them (Saudi Arabia or Iran) is going to voluntarily cede a single barrel to the other, so it arguably makes a coordinated production cut even less likely than it has been," one Middle East oil trader said.
In the United States, West Texas Intermediate (WTI) futures set fresh 2009 lows of US$32.77 per barrel, with prices crawling back to US$33.25 by 0213 GMT.
Analysts said that the huge US storage overhang was the main reason for falling WTI crude. "Data suggest gasoline and distillate fuel stockpiles increased 10.6 million barrels and 6.3 million barrels, respectively, last week. The rise in gasoline and distillate inventory more than offset the fall in crude oil inventory levels by 5.09 million barrels to (still near record) 482.3 million barrels last week," ANZ bank said.
The huge storage overhang means that even if US production falls this year as drillers succumb to low prices, it will take many months to work down excess supplies.
With the global economy looking shaky due to China's slowdown, traders said the outlook for oil remains for cheap prices for much of this year.