Investing.com - Oil prices sank to levels not seen in more than ten years on Thursday, as a meltdown on China’s stock market and a rapid depreciation of the yuan rattled investor sentiment.
Trading on China’s stock markets was suspended for the second time this week after just 30 minutes on Thursday, as a plunge of more than 7% after the open triggered circuit breakers.
Market sentiment was hit after the People's Bank of China set its official yuan midpoint rate lower compared with Wednesday's fix. It was the largest daily drop in the midpoint rate since last August, when an unexpected almost 2% devaluation of the currency sparked a broad based selloff in markets.
Some market players see the tactic as an attempt by China to shore up growth, while others are concerned over a currency war that could destabilize the global economy.
China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Crude oil for delivery in February on the New York Mercantile Exchange shed 88 cents, or 2.59%, to trade at $33.09 a barrel as of 14:30 GMT, or 9:30AM ET. It earlier fell to $32.10, a level not seen since December 2003.
On Wednesday, Nymex prices tumbled $2.00, or 5.56%, after data showed that gasoline supplies in the U.S. rose sharply last week, underlining concerns over a slowing demand for oil products.
Elsewhere, on the ICE Futures Exchange in London, Brent oil for February delivery dropped 77 cents, or 2.26%, to trade at $33.45 a barrel, after sinking to $32.16, the lowest since April 2004. A day earlier, London-traded Brent futures lost $2.19, or 6.01%.
Meanwhile, Brent's premium to the West Texas Intermediate crude contract stood at 36 cents, compared to a gap of 26 cents by close of trade on Wednesday.
Global crude production is outpacing demand following a boom in U.S. shale oil and after a decision by the Organization of the Petroleum Exporting Countries last year not to cut production in order to defend market share.
Most market analysts expect a global glut to worsen this year due to soaring production in North America, Saudi Arabia and Russia.
Oversupply issue will be exacerbated further once Iran returns to the global oil market early next year after western-imposed sanctions are lifted. Analysts say the country could quickly ramp up production by around 500,000 barrels, adding to the glut of oil that has sent prices tumbling.