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 LONDON (Reuters) - Oil prices fell for a sixth session to trade at
almost 12-year lows on Monday as concerns about China's economic
slowdown, reflected in a renewed slide in its stock markets, weighed
on the outlook for demand this year.
Traders increased bets against any near-term recovery in the oil
price and Brent crude futures were down by 63 cents at $32.92 a
barrel by 1200 GMT, off 15 percent in a week. U.S. West Texas
Intermediate (WTI) crude futures fell 48 cents to $32.68.
Speculators increased their net short positions to a record high in
the week to last Tuesday, data showed on Friday, in a sign that they
are losing faith in a price rise any time soon.
Analysts pointed to China's economic slowdown, which has seen the
yuan weaken and two emergency suspensions in Chinese equity markets
last week, as the main reasons for lower oil and commodity prices.
On Monday, turbulence gripped Chinese markets again, as blue-chip
stocks fell by another 5 percent and overnight interest rates for
the yuan outside of China soared to nearly 40 percent, their highest
since the launch of the offshore market.
"If the first week is anything to go by we are in for a long,
volatile and very exhausting year. The week started on a bad note
and ended on a good one but the market response, worryingly, was the
same to both - sell, sell, sell," David Hufton, of oil brokers PVM
Oil Associates, said in a note.
"China has torpedoed the hopes of the optimists. The third leg of
the financial crises involving emerging markets that the IMF, World
Bank, BIS and various messengers of doom had warned of has come into
play," he said.
Morgan Stanley said on Monday that oil prices in the $20s were
possible, especially if the dollar surges more against other
currencies. "A 15 percent CNY (Chinese yuan) depreciation alone
could send oil into the $20s," the bank said.
Monday's decline adds to last week's more than 10 percent drop in
both Brent and WTI prices and analysts believe the pain for
producers will intensify in the early part of this year.
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Goldman Sachs has maintained for over a year that it may take a drop
toward $20 to flush out enough higher-cost output to rebalance the
market.
Oil prices have fallen by more than 70 percent since the downturn
began in mid-2014 as rising global production sees hundreds of
thousands of barrels of crude produced every day without a buyer.
This imbalance looks set to increase this year as Iran brings
barrels back to global markets and other countries such as Iraq and
Russia pump at, or near, record levels.
"If you actually look at how low (prices) need to go to hit
variable-cost production, then you need a two-handle on crude and we
could well be in that world now," Citi head of energy research Seth
Kleinman said.
"Q2 looks brutal. You could have refiners coming offline, just as
Middle East production comes back online, including Iran."
Adding to overproduction is slowing demand, especially in China
where growth has dropped to its lowest rate in a generation and
experts see few signs of improvement for the next few years.
(Additional reporting by Henning Gloystein in Singapore; Editing by
Susan Fenton)
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