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.