Oil hit four-month lows on Monday after a steep drop in Chinese stock markets and on more evidence of a global supply glut that has halved prices over the past year.
Chinese stocks tumbled more than 8% 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, Reuters reported.
“The 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 fell to its lowest in four months at $53.63 a barrel, down by 99 cents. On Friday, Brent closed at $54.62, its lowest since March 19. US crude for September was down 57 cents at $47.57 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 competing for market share and pumping up to 3% more oil than needed, according analysts.
Weekly US drilling rig data showed on Friday 21 oil rigs had been added, the highest gain since April 2014, pointing to a further increase in US oil output.
In Iraq, exports from its southern oilfields are on course for a monthly record, having topped 3 million barrels per day so far this month.
“In the next couple of months, even if the global oversupply and seasonal weakness are becoming priced in, it is difficult to see where any price uplift will come from,” said Societe Generale oil analyst Michael Wittner.
