Oil drops to $32 as fears about China’s economy grow

Unsurprisingly, three-month delivery contracts of copper (down 1.4%), nickel (down 1.0%), lead (down 2.2%), zinc (down 2.5%) and tin (down 0.2%) extended the previous session’s losses in late afternoon trading, while primary aluminium futures came in broadly flat.

United States oil futures in NY slid to the lowest in 12 years as turmoil in China’s markets pushes crude closer to $US30 a barrel.

By early afternoon, prices had recovered to about $33.5 per barrel.

Brent for February settlement gained as much as 97 cents, or 2.9 percent, to $34.72 a barrel on the London-based ICE Futures Europe exchange.

The global economy will sputter along this year as China’s slowdown prolongs a commodity slump, the World Bank said Wednesday.

China let the yuan slip on Thursday, sending regional currencies and stock markets tumbling as the offshore yuan fell to its lowest since trading started in 2010. The move triggered a rapid-fire selloff in the Chinese stock market that triggered the ” circuit breaker” mechanism, halting trading for the rest of the day within an hour of the opening.

And last but not least, let’s not forget about the USA dollar remaining stubbornly strong, which only adds to the price pressures facing crude oil.

The focus on Wednesday was US government data showing a 10.6 million-barrel surge in gasoline supplies, the biggest build since 1993, which some traders said signaled a slow-down in demand that could prolong the global glut. Crude slid Thursday to the lowest since December 2003 as market turbulence reverberated across the globe amid concern over economic growth in the world’s biggest energy consumer.

Kantchev also pointed out that oil markets are preparing for hundreds of thousands of barrels of oil from Iran. The last time Brent was so low was April 2004.

Liz Grant, Senior Account Executive at Sucden Financial, said, “With all risk buttons set to “off”, more investors fled to gold as a shelter and this saw prices trade up through $1,100 to $1,107.60 an ounce at one point”.

Craigs Investment Partners broker Chris Timms said shale oil production and increasing capacity from countries such as Russian Federation which needed to protect revenue, combined with expectations of further Iranian supply, meant actual production as well as expectations of future production were rising.

However, low oil prices are also a significant factor in the dangerously low levels of inflation in the Euro area in particular, which massive efforts by the European Central Bank have failed to budge. “The trend is down and likely to accelerate lower – it is not advised to be long”.