Oil prices hit 12-year low as fears about China grow

Investors are reacting to the on-going row between Saudi Arabia and Iran, which has crushed any hopes that OPEC members will agree to a reduction in oil production.

World oil prices fell to their lowest levels in 12 years Thursday as China’s market turmoil heightened worries about the state of the world’s second-largest consumer of crude oil.

In addition, crude oil prices also suffered from fears that American reserves of crude increase again, although according to estimates by the professional organization American Petroleum Institute (API) published Tuesday evening, they declined by 5, 6 million barrels.

In more downbeat news, the World Bank lowered its global economic growth forecasts citing emerging market weakness, which cast doubt on the strength of future oil demand, dealers said.

Oil has slumped from above $115 in June 2014 as shale oil from the United States has flooded the market, while falling prices have prompted some producers to maximise output to prevent income falling too rapidly and keep market share.

US crude futures were down $1.48 at $34.49 a barrel after slipping 79 cents the previous day.

However, oil’s rapid fall has made a prediction that Goldman Sachs made a year ago that crude could fall as low as $20 a barrel seem less outlandish than it then seemed.

SHANGHAI: China stocks fell 7 percent on Thursday after less than half an hour of trading, triggering a newly-introduced circuit breaker mechanism. “It is the Chinese stock market sell-off and the strong dollar that are pressuring oil”, said Tamas Varga, oil analyst at London brokerage PVM Oil Associates.

Gerard said the geopolitics of energy has changed significantly over the last decade as the U.S. has experienced an oil boom in recent years and the daily production is now around nine million barrels a day.

Yesterday’s stats from the USA government further underlined the oversupply problem, as it showed that whilst crude stocks reduced by 5mln barrels last week, there was also a 10.6mln barrel rise in the stockpile of gasoline.

“European crude and product inventories are close to full with Asian inventories moving closer to capacity during Q1 2016, with global residual surplus most likely having to be stored in the US, resulting in a potentially rapidly rising USA oil inventories”.