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Oil prices drop on rising US rig count, China stock market probe
[SINGAPORE] Oil prices dropped on Friday on ongoing concerns of oversupply and after Chinese regulators opened an investigation into suspected stock market manipulation that also dragged on other commodities.
Front-month US crude futures were trading at US$56.54 per barrel at 0038 GMT, down 39 US cents from their last settlement.
That means that US crude has fallen below a price range of US$57-62 per barrel that it had been in since early May.
Brent crude futures were down 23 US cents at US$61.84 per barrel, keeping the contract in a downward trend that has been in place since early May and which has seen prices fall almost 10 per cent. "Negative sentiment stemmed from an increased US oil rig count (by 12 to 640), after dropping for six months. US shale producers have brought down the breakeven cost from US$35 to US$20 per barrel," ANZ bank said on Friday.
The rising US rig count adds to near record production by OPEC and Russia.
Traders said that Asia's commodity markets were also impacted by reports that China's regulators had opened an investigation into suspected market manipulation after a slump of more than 20 per cent in Chinese stocks since mid-June On Thursday, Shanghai's benchmark composite index fell below 4,000 points for the first time since April - a key support level that analysts had expected Beijing to defend. They had predicted that more conservative investors would start closing out leveraged positions if the index fell below 4,000.
The weak stock markets also pulled down other commodities.
Iron ore futures into China .IO62-CNI=SI have dropped almost 15 per cent since mid-June and at US$55.80 a tonne are not far above their historic lows of under US$47 from last April, while Chinese steel prices hit at least six-year lows of just over 2,100 yuan this week.
Beyond China's investigation, analysts said that iron ore, like oil, was suffering from oversupply.