August 24, 2015 / 2:31 AM / in 2 years

Oil tumbles up to 6 percent to new lows as China fears intensify rout

3 Min Read

A service truck drives past an oil well on the Fort Berthold Indian Reservation in North Dakota, November 1, 2014.Andrew Cullen

NEW YORK (Reuters) - Oil's weeks-long slump accelerated sharply on Monday with prices tumbling as much as 6 percent to fresh 6-1/2-year lows as a renewed dive in the Chinese equities market sent global financial markets into a tailspin.

A near 9-percent fall in China shares roiled global markets and sent the Dow Jones Industrial Average .DJI down more than 1,000 points in early trading. Wall Street pared losses by mid-morning, briefly easing oil's slide, but a second wave of selling re-emerged in the afternoon.

Oil's biggest one-day drop in nearly two months suggested that worst-case fears over the economic outlook in China, the world's second-largest oil consumer, have eclipsed immediate signs of persistent oversupply as the main motivator.

"Today's falls are not about oil market fundamentals. It's all about China," Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt, told the Reuters Global Oil Forum. "The fear is of a hard landing and that things get out of the control of the Chinese authorities."

Brent October crude LCOc1 fell $2.77, or 6.1 percent, to settle at $42.69 a barrel but fell to a contract low of $42.23 in post-settlement trading, the lowest front-month price since March 2009.

Prices extended losses in after-hours trading, as the U.S. S&P Index .SPX fell by more than 4 percent at one point.

U.S. October crude CLc1 fell $2.21 or 5.5 percent to settle at $38.24, the lowest since February 2009. The $37.75 session and contract low was the lowest since February 2009.

U.S. crude, on pace for a 18 percent monthly loss, posted its eighth consecutive weekly loss on Friday, the longest weekly losing streak since 1986.

Oil's more nearly 40 percent slump since its late-June high has set off alarm bells among some hard-hit members of OPEC, triggering some talk of an emergency meeting, although even most Gulf members see that as unlikely.

The sentiment-driven slump took a toll across the markets, with many raw materials plumbing new lows. The 19-commodity Thomson Reuters/Core Commodity CRB Index .TRJCRB dropped nearly 2.7 percent to its lowest since late 2002.

"Macro factors are currently dominating micro factors in the oil market," analysts at Standard Chartered said in a report.

The focus on macro affairs has, for the moment, taken traders' minds off of the looming slowdown in crude demand this autumn, when refiners shut for seasonal work. U.S. oil inventories likely rose by 2.2 million barrels last week, extending an early build-up in excess supplies.

Additional reporting by Karolin Schaps in London and Meeyoung Cho in Seoul; Editing by W Simon and Cynthia Osterman

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