Oil extends slide below $30 on oversupply, weak China data

Crude futures dropped below $30 a barrel on Tuesday, extending the previous day’s losses by more than 3 percent, as persistent worries about oversupply and more signs of a Chinese economic slowdown spooked the market.

Data showed China’s annual rail freight volume, a key economic indicator, fell 11.9 per cent in 2015, versus a drop of 3.9 per cent in 2014, adding to concerns of contracting economic activity and weighing on oil prices. Brent crude fell $1.13 to $29.37 a barrel by 0824 GMT, after hitting a session low at $29.27 a barrel, after settling down $1.68 in the previous session. US crude fell $1.03 to $29.31 a barrel, after hitting a low of $29.25. It fell $1.85 a day earlier.

“Technical short-covering and a cold spell in the United States and some parts of the northern hemisphere had helped prices rally temporarily, most of which was wiped out if you look at yesterday’s prices,” said Kang Yoo-jin, a commodities analyst at NH Investment and Securities based in Seoul. “Psychological factors have driven the severe volatility in the market,” added Kang, who said the situation was likely to persist until concerns over oversupply were lifted.

The Organization of the Petroleum Exporting Countries (OPEC) cannot cut its oil output when producers from outside the group are raising their supplies, Kuwait’s OPEC governor said on Tuesday, adding that both sides should work together to stabilise the oil market.

Chinese shares

The drop in oil prices saw Chinese shares plunge more than 6 per cent to 14-month lows on Tuesday, reviving concerns about global growth and prompting a sell-off in the world’s equity markets.

The benchmark Shanghai Composite Index ended down 6.4 per cent after a late selling frenzy at 2749.79 points, its lowest close since December 1st, 2014. The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 6 per cent to 2940.51, also its lowest since the beginning of December 2014. After a rebound on Friday and early Monday, crude prices fell back below $30 a barrel, not far from last week’s 12-year lows, ending a couple of days of gains for Wall Street stocks. China’s fickle stock markets have now slumped about 22 per cent so far this year on concerns about the slowing economy and confusion over the central bank’s foreign exchange policy. Many investors have lost the stomach for the market after a wild ride since last summer, when shares crashed 40 per cent. Beijing intervened to stem that rout and orchestrate a recovery of sorts, but anyone who mistook that for a bottom and bought in will have lost their shirt again in January. “We’ve seen another stampede driven by panic,” said Yang Hai, analyst at Kaiyuan Securities. “There’s no good news in sight while investors are being affected by the global ‘risk-off’ mood.”

Reuters