Crude oil futures trade near 6-year lows as yuan sinks further
Investing.com - Crude oil futures traded near six-year lows on Wednesday, after China allowed the yuan to fall sharply for the second day as policymakers look to prop up the nation's ailing economy.
Some market analysts feared that the rapid decline in the value of the yuan could ignite a currency war that would destabilize the global economy.
Risk-related assets sold-off, with global stocks, emerging market currencies and commodities all under pressure, while safe-haven assets, such as government bonds and gold, saw a boost in demand.
On the ICE Futures Exchange in London, Brent oil for October delivery inched up 13 cents, or 0.26%, to trade at $49.84 a barrel during European morning hours.
A day earlier, London-traded Brent prices lost $1.31, or 2.57%, to end at $49.71. Brent tumbled to $48.24 on Monday, the weakest level since March 2009.
In its monthly report released earlier in the session, the IEA said that global oil demand is forecast to increase by 1.6 million barrels a day this year, raising its projection from last month by 200,000 a day.
However, the agency warned that a global oil glut will last through next year, saying that, "while a rebalancing has clearly begun, the process is likely to be prolonged as a supply overhang is expected to persist through 2016--suggesting global inventories will pile up further."
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 September on the New York Mercantile Exchange tacked on 24 cents, or 0.57%, to trade at $43.33 a barrel.
On Tuesday, Nymex oil fell to an intraday low of $42.69, a level not seen since March 2009, before closing at $43.08, down $1.88, or 4.18%.
Market participants looked ahead to fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of demand in the world's largest oil consumer.
Wednesday's government report was expected to show that U.S. crude oil stockpiles fell by 1.8 million barrels last week, while gasoline stockpiles were forecast to decline by 0.7 million barrels.
After markets closed Tuesday, the American Petroleum Institute, an industry group, said that U.S. crude inventories fell by 847,000 barrels in the week ended August 7, compared to expectations for a decline of 1.8 million.
New York-traded oil futures have been under heavy selling pressure in recent months as worries over high domestic U.S. oil production weighed.
According to industry research group Baker Hughes (NYSE:BHI), the number of rigs drilling for oil in the U.S. increased by six last week to 670, the third straight weekly gain.
There are still about 60% fewer rigs working since a peak of 1,609 in October, though the pace of declines has slowed considerably in recent weeks, fueling concerns that U.S. shale production could rebound in the months ahead.
Meanwhile, the spread between the Brent and the WTI crude contracts stood at $6.51 a barrel, compared to $6.63 by close of trade on Tuesday.
The U.S. dollar came under pressure as China's surprise move to devalue its currency fanned hopes that the Federal Reserve could delay raising interest rates until the very end of 2015.
The U.S. dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, was down 0.6% at 96.66 early Wednesday, the lowest level since July 31.
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