Oil prices fall af­ter China de­val­ues yuan


Oil prices fell on Tues­day af­ter China de­val­ued its cur­rency in its latest ef­fort to prop up eco­nomic growth, mak­ing dol­larpriced com­modi­ties more ex­pen­sive and weigh­ing on the oil de­mand out­look for the world's top energy con­sumer.

A slow­down in China's econ­omy, which is still ex­pected to grow by around 7 per­cent an­nu­ally, has been a key driver for the sharp drop in oil prices over the past year along with ris­ing global sup­plies.

Front-month Brent fu­tures were down 71 cents at $49.70 a bar­rel at 1110 GMT, cut­ting short oil's big­gest daily rally since late May the pre­vi­ous ses­sion. U.S. crude fell 80 cents to $44.16 a bar­rel.

China's cen­tral bank made a "one-off de­pre­ci­a­tion" of nearly 2 per­cent in the yuan af­ter a run of poor eco­nomic data, guid­ing the cur­rency to its low­est point in al­most three years. "It's bad news for oil be­cause China will have to pay more for it," Hamza Khan, se­nior com­modi­ties an­a­lyst at ING Bank, said.

"On the other hand, if this de­val­u­a­tion is strong enough to lead to a re­cov­ery in Chi­nese ex­ports and im­prove China's GDP fig­ures, then it will be bullish for oil." "The short-term im­pact is muted and the long-term im­pact is bullish," Khan said. Also on Tues­day, data showed auto sales in China fell 7.1 per­cent in July from a year ear­lier to 1.5 mil­lion ve­hi­cles, their big­gest de­cline since Fe­bru­ary 2013. But over­all seven-month growth this year stood slightly above 2014 fig­ures.

Adding fur­ther pres­sure, OPEC on Tues­day raised its forecast of 2015 oil sup­plies from non-mem­ber coun­tries, a sign that oil's price col­lapse is tak­ing longer to hit North Amer­i­can shale and other com­pet­ing sources than pre­vi­ously thought.

In a monthly re­port, the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries raised its forecast for non-OPEC sup­ply this year by about 90,000 bar­rels per day. "There is still no solid ba­sis for any pro­longed price re­cov­ery given that the huge over­sup­ply re­mains firmly in place," Com­merzbank said in a note.

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