Oil prices continued to fall yesterday as China allowed its currency to drop further and its industrial output fell short of expectations just as oil production hit multi-year highs.
China’s yuan hit a four-year low yesterday, slipping further a day after authorities devalued it to support its struggling economy, where industrial output was reported short of expectations.
Although analysts noted that China’s overall currency fall was relatively low by historical standards in foreign exchange markets, they were quick to add that China’s case was different.
“It is China – the largest consumer of most commodities and a large producer of many – and it’s the yuan, which rarely moves much against the US dollar and when it does, it traditionally appreciates not depreciates,” Australian bank Macquarie said in a note to clients.
Tuesday’s fall in the yuan against the dollar was the biggest in 20 years, it added.
A lower yuan erodes Chinese purchasing power for dollar-denominated imports like oil, potentially hitting fuel demand. US crude futures were at $42.87 per barrel at 0706 GMT, down 21 cents from Tuesday, which marked its lowest settlement since March 2009.
Brent futures were down 30 cents at $48.88, more than 25 per cent below their last peak in May.
“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 the fundamental side, the Organisation 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, and the group forecast no extra demand for its crude oil this year.
China’s struggles also hit coal, of which it is the world’s biggest importer, with benchmark futures falling to levels last seen a decade ago.