Oil prices fell close to four month lows in early Asian trade on Tuesday after stock market sell-offs on both sides of the Pacific rattled investor sentiment about the Chinese economy, adding to concerns about a global oil glut.
Both the dollar and euro held steady in early Asian trade after the dollar index slipped 0.7 percent in the previous session. The euro surged to a two-week high overnight, which had helped to support oil prices.
“Technical levels continue to break. It’s a trend which says investors are selling,” said Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance. “It’s all about sentiment – it’s one-way traffic.”
Uncertainty over the health of the Chinese economy, reflected in the sell-off in Chinese stocks, lacklustre oil demand in the United States and increasing oil supplies all added to investors’ negativity about oil prices, Barratt said.
Brent for September delivery dropped 53 cents to $52.94 as of 0240 GMT after falling $1.15, or 2 percent, in the previous session. The benchmark fell as low as $52.90 post-settlement, its lowest since mid-March
U.S. crude for September delivery dropped 35 cents to $47.04 a barrel after ending the previous session down 75 cents. It fell below $47 post-settlement, the lowest since March 24.
The Chinese government will continue to buy shares to stabilise the stock market, the country’s top securities regulator said on Monday, after major indices plunged more than 8 percent.
The stock market rout in China led to falls on bourses in Europe and the United States.
Barratt thought China would continue to pump-prime the economy to stimulate demand.
“More stimulus is on the cards. But what worries me is if (domestic) confidence gets hit, then everybody else gets hit,” he said.
U.S. oil stocks probably saw mixed results last week, with a modest draw in crude oil inventories countered by a gain in gasoline stocks, a preliminary Reuters poll of analysts showed ahead of industry and official weekly inventory reports.
Crude stocks fell by 300,000 barrels to 463.6 million barrels in the week that ended July 24, analysts estimated. That would be more than 100 million barrels above the five-year seasonal average.
“We’re not seeing the level of demand in the U.S. one usually expects related to the summer drive-time,” Barratt said.
“The world is awash with oil. All OPEC countries need to sell oil to generate income,” he added.