Oil Drops to 4 Month Low After Chinese Market Drop

Oil hit four-month lows on Monday after a steep drop in Chinese stock markets spread concerns about the economic health of the world’s biggest energy consumer and more evidence emerged of a global supply glut.

Chinese stocks tumbled more than 8 percent on Monday, the biggest one-day drop in eight years, showing an unprecedented government rescue effort to prop up valuations has run out of steam.

“Today’s oil price fall has been driven by the slump in Chinese stock markets,” said Carsten Fritsch, senior oil market analyst at Commerzbank in Frankfurt.

Front-month Brent crude LCOc1 fell to an intraday low of $53.36 a barrel, its lowest in more than four months and down $1.26 on the previous close.

It last traded at $53.52, down $1.10, at 1245 GMT. On Friday, Brent closed at $54.62, its lowest finish since March 19.

U.S. crude for September CLc1 was down 80 cents at $47.34 a barrel.

China is the world’s biggest energy consumer and a huge oil importer. Investors worry that a stock market crash could destabilize the Chinese economy and cut fuel demand.

Global oil supplies are ample, with major oil producers in the Middle East Gulf competing for market share and pumping 2-3 percent more oil than needed, analysts say.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza