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Oil plunges to fresh 6-1/2 year low as panic grips the market

CommoditiesAug 24, 2015 08:27AM ET
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© Reuters. Crude oil futures tumble after 'Great Fall of China' - Oil futures sank to levels not seen since the peak of the global financial crisis in 2009 on Monday, as steep declines on China's stock market rattled investors' confidence.

The Shanghai Composite tumbled nearly 9% on Monday, the biggest one-day drop since February 2007, on investor disappointment that Beijing held back from implementing fresh measures over the weekend to support stocks after markets fell 11% last week.

Chinese equities have been under heavy selling pressure in recent weeks amid fears over China's slowing economy and worries that Beijing may allow the yuan to continue to depreciate.

Market players are concerned that the plunge in the stock market could spread to other parts of the Chinese economy, triggering fears that the Asian nation's demand for oil will decline.

Meanwhile, Germany's DAX crashed almost 5%, while the Dow and S&P 500 pointed to heavy losses at the open, as fears of a China-led global economic slowdown spooked traders and rattled sentiment.

Financial markets have been roiled since China devalued the yuan on August 11, sparking a selloff in equities, commodities and emerging-market assets.

On the ICE Futures Exchange in London, Brent oil for October delivery hit an intraday low of $43.29 a barrel, the lowest level since March 2009, before trading at $43.74 during U.S. morning hours, down $1.72, or 3.78%.

London-traded Brent futures lost $3.30, or 7.58%, last week, the eighth straight weekly decline, as ongoing concerns over a glut in world markets continued to drive down prices.

Global oil production is outpacing demand following a boom in U.S. shale oil production and after a decision by the Organization of Petroleum Exporting Countries last year not to cut production.

Elsewhere, crude oil for delivery in October on the New York Mercantile Exchange declined $1.58, or 3.89%, to trade at $38.88 a barrel after falling to a session low of $38.61, the weakest level since February 2009.

New York-traded oil futures plunged $2.39, or 6.17%, the tenth consecutive weekly loss, last week, amid indications that U.S. drilling activity could rebound in the months ahead and add to a supply glut.

Industry research group Baker Hughes (NYSE:BHI) said late Friday that the number of rigs drilling for oil in the U.S. increased by two last week to 674, the fifth straight weekly gain. The rig count dropped for 29 straight weeks before rebounding modestly in recent weeks.

Meanwhile, the spread between the Brent and the WTI crude contracts stood at $4.86 a barrel, compared to $5.01 by close of trade on Friday.

Oil plunges to fresh 6-1/2 year low as panic grips the market

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