Global Oil Prices Drop After China Devalues Yuan

Oil fell as much as 5 percent on Tuesday after No. 2 consumer China devalued its currency, raising questions about its demand for crude, while a new estimate showed non-OPEC producers more resilient than expected in keeping output up despite low prices.

U.S. crude hit contract lows, trading less than $1 per barrel above its bottom for 2015. Brent, the global benchmark, pared most gains from a Monday rally, heading for its largest decline in a week.

"It's time to sell any and all rallies," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York, who believes oil prices are heading lower.

China's central bank made what it called a "one-off depreciation" of nearly 2 percent in the yuan after a run of poor economic data, guiding the currency to a near three-year low.

The Organization of the Petroleum Exporting Countries projected that crude supplies from countries outside the group will rise by 90,000 barrels per day this year, a sign the crude price collapse was taking longer than thought to hit the North American shale oil industry and other competing sources.

U.S. crude for September delivery slipped by $2.10, or 4.7 percent, to $42.86 a barrel by 2:00 p.m. EDT (1800 GMT), after a session low at $42.69. The front-month continuation contract for U.S. crude had previously struck a 2015 low of $42.03.

Front-month Brent was down $1.36, or 2.7 percent, at $49.05. It had gained 3.7 percent in the previous session, its most since late May.

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This year so far, U.S. crude has lost 19 percent, extending the 46 percent drop in 2014. Brent has fallen 15 percent, adding to last year's 48 percent tumble.

A global oversupply in oil since last summer, led by stubbornly strong U.S. shale crude output and record output by Middle East producers, have driven prices down from June 2014 highs above $100 a barrel.

While weekly inventory numbers for U.S. crude have sometimes come in lower than anticipated, they have not sustained a price recovery.

The American Petroleum Institute, an industry group, will issue its report for last week's inventories at 4:30 p.m., after Tuesday's market settlement.

Analysts polled by Reuters expect a 1.8 million-barrel decline from the previous week. Official data on stockpiles are due on Wednesday.

China is another factor for the drop in oil and commodity prices, with its historically low growth forecast of around 7 percent in 2015.