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Oil prices drop as China allows yuan to fall
[SINGAPORE] Crude oil prices fell again on Wednesday as China allowed its currency to fall sharply for a second day, triggering concerns over the country's economic health just as oil production hit multi-year highs.
Brent futures initially edged up before continuing their slide of the last two months as China's yuan hit a four-year low, slipping further a day after authorities devalued the yuan in a move to support its struggling economy and which sparked fears of a global currency war.
A lower yuan erodes Chinese purchasing power for dollar-denominated imports like oil, potentially hitting fuel demand.
Benchmark Brent futures were down 31 cents at US$48.87 per barrel at 0251 GMT. US crude was trading at US$43.02 per barrel, down 6 cents from Tuesday when it marked it lowest settlement since March 2009. "The Chinese yuan continues to weaken for the second day which could suggest further weakening of oil prices,"Singapore-based brokerage Phillip Futures said on Wednesday. "On top of this, Opec's August 2015 report shows slightly increasing production." The Organization of the Petroleum Exporting Countries (Opec) said on Tuesday that its members continued to boost supplies. According to secondary sources cited by the report, Opec produced 31.51 million barrels per day (bpd) in July - 1.5 million bpd more than its 30-million-bpd target.
Opec also raised its forecast of oil supplies from non-member countries in 2015, a sign that crude's price collapse is taking longer than expected to hit US shale drillers and other competing sources, and the group forecast no extra demand for its crude oil this year.