Oil fell below $33 a barrel on Thursday for the first time since April 2004 as a fall in Chinese shares rattled investors already concerned by near-record production and massive stockpiles of unwanted crude and refined products.
Oil prices have fallen by around 70 percent since mid-2014, hurting oil companies and governments that rely on crude revenue.
China let its yuan currency slip on Thursday, sending regional currencies and stock markets globally tumbling. The offshore yuan fell to its lowest since trading started in 2010.
China’s stock markets were suspended less than half an hour after opening on Thursday after sharp falls triggered a new circuit-breaking mechanism for a second time since its introduction this week.
“For a number of years, China has been key. Particularly, on a global level, for all commodities – and the same applies to oil. That’s less so in 2016 but still they are significant. So their growth in demand is about 30% of the world’s growth in demand for oil,” said Spencer Welch, Director of IHS Global Insight’s Oil Markets Team.
“It’s still really in over-supply, but we expect the market to come back to balance with gradually increasing demand and some reduce in supply. But if there’s a threat to that potential increase in demand, which is what this China news is, then that may mean that the market stays oversupplied for a longer period of time, keeping prices down,” he added.
Brent fell more than 5 percent to a low of $32.16 before paring some of its losses. It stood down 3.4 percent at $33.07 at 1230 GMT.
U.S. crude futures hit a low of $32.10, their lowest since late 2003, before bouncing slightly to $32.72.
Prices trimmed early losses, with violence in the Middle East and north Africa offering a measure of support for the market.
A military training centre in the Libyan town of Zliten was hit by a truck bomb on Thursday, causing dozens of casualties, witnesses said, while dozens of air strikes hit the Yemeni capital Sanaa.
However, oil‘s rapid fall has made a prediction that Goldman Sachs made last year that crude could fall as low as $20 per barrel seem less outlandish than it then seemed.
“Although the oil price could hit that level, we would not expect that to be maintained, certainly not on a monthly average basis,” said Welch.
“So on a daily, or a couple of days, yes, it could hit that level, but we don’t expect that to be sustained because the impact on production would become significant very quickly. So whereas it wouldn’t be just a case of people stopping drilling for oil in North America, it would mean that people who are currently producing would turn off some of that production so there would be a much quicker reaction in terms of the oil production,” he added.
On Wednesday, U.S. government data showed a 10.6-million-barrel surge in gasoline supplies, the biggest weekly build since 1993.
Analysts said further builds in global inventories are possible, putting more pressure on prices.
Technical analysts also said there was little to stop the price tumbling further, one saying that a “bear-fest” had begun.
Exacerbating the oil market woes is weakening demand, especially in Asia including China, which is seeing its slowest economic growth in a generation.
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