SINGAPORE: Oil prices extended losses in Asia on Wednesday as dealers worried about China’s economy following its surprise currency devaluation, while oversupply concerns also added to downward pressure, analysts said.
US benchmark West Texas Intermediate (WTI) for September delivery fell nine cents to $42.99 while Brent crude for September slipped 26 cents to $48.92 in afternoon trade.
WTI on Tuesday sank to its lowest close since March 2009, while Brent also fell in London, after China’s central bank moved to devalue its currency by nearly two percent against the US dollar.
The People’s Bank of China again lowered the daily fix that sets the value of the Chinese currency against the greenback on Wednesday by 1.62 percent, sending a new shockwave through financial markets.
“The Chinese yuan continues to weaken for the second day, which could suggest further weakening of oil prices,” said Daniel Ang, an investment analyst at Phillip Futures in Singapore.
Investors fear Beijing’s move signaled concerns over growth in the world’s second-largest economy and top energy consumer, which came after data published over the weekend showed a slump in Chinese trade.
It also pushed up the greenback, which strengthened further against Asian currencies on Wednesday, hurting dollar-denominated commodity prices by making them more expensive for international buyers.
Ang said prices were also under pressure after the Organization of the Petroleum Exporting Countries (OPEC) said output in July rose by 100,700 barrels per day from the previous month to 31.5 million barrels per day.
“An increase in OPEC production is certainly not ideal for the oversupplied market at this point in time,” Ang said.
The producer cartel’s refusal to cut its output level despite sagging demand is seen as a reason for a prolonged global oversupply, which has seen prices fall to almost a third of their mid-2014 peak.
Analysts have said the move is an attempt by the cartel’s kingpin Saudi Arabia to defend its market share as it fends off competition from US shale oil.