U.S. Crude Prices Rise in Tumultuous Market

Reuters

Oil prices fell to their lowest point in nearly six months on Tuesday as a meltdown in Chinese equities deepened doubts about the outlook for crude demand in the world's top commodities consumer.

China's already volatile benchmark stock index, with a combined market capitalisation of $4.6 trillion, has lost 10 percent in the last two days of trade.

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Most household debt is linked to real estate rather than the stock market but with Chinese economic growth struggling to stick at 7 percent, analysts say demand for crude may not be enough to help mop up a global supply glut.

"Typically, equity markets do have a high correlation to quarterly GDP growth," Deutsche Bank strategist Michael Lewis said. "Naturally, there is some risk that this could spill into the real economy. The more these things go down on a day-by-day basis, that is starting to affect the potential of Chinese demand growth being weaker."

Brent was down 97 cents at $52.50 a barrel by 1410 GMT, having hit a session low of $52.28, its lowest since early February, bringing losses for July to nearly 18 percent.

Brent crude is on track for its longest stretch of daily losses since March, when the price hovered just dollars away from six-year lows.

U.S. crude was last down 24 cents at $47.15 a barrel after ending the previous session down 75 cents.

Compounding the uncertainty over the health of the Chinese economy is concern about rising global oil production, particularly from the United States, in a market already oversupplied by some 2 million barrels a day.

"Essentially, we see prices staying lower for longer, but that is a function of crude supply response, primarily from the U.S., which remarkably has not shown any signs of slowing at the moment," said Virendra Chauhan, an analyst at consultancy Energy Aspects, in a discussion in the Reuters Global Oil Forum.

"We think Brent could dip below $50," he said.

Investors are watching for weekly data on U.S. inventory levels to gauge the strength of demand.

U.S. commercial crude oil stocks are expected to have fallen by 300,000 barrels to 463.6 million barrels in the week to July 24, according to analyst estimates. (Additional reporting by Keith Wallis in Singapore; Editing by Mark Heinrich)