Oil prices fall for sixth session as recovery hopes wane

Oil prices fell for a sixth session to trade at almost 12-year lows on Monday as slowing growth in China rattled investors' hopes for demand this year and traders increased bets against any near-term recovery.

Brent crude futures were down by 47 cents at $33.08 a barrel by 0935 GMT, off 15% in a week, while U.S. West Texas Intermediate (WTI) crude was down 52 cents at $32.64 per barrel.

Speculators increased their net-short positions to a record high in the week to last Tuesday, in a sign that they are losing faith in a price rise anytime soon.

Analysts pointed to China's slowdown, which saw a slide in the yuan and two emergency suspensions in stock trading markets last week, as the main reasons for lower oil and commodity prices.

 

On Monday, turbulence gripped Chinese markets once again, as blue-chip stocks fell by another 5% and overnight interest rates for the yuan outside of China soared to nearly 40%, their highest since the launch of the offshore market.

"If the first week is anything to go by we are in for a long, volatile and very exhausting year. The week started on a bad note and ended on a good one but the market response, worryingly, was the same to both - sell, sell, sell," David Hufton, of oil brokers PVM Oil Associates, wrote in a note.

"China has torpedoed the hopes of the optimists. The third leg of the financial crises involving emerging markets that the IMF, World Bank, BIS and various messengers of doom had warned of has come into play," he said.

Morgan Stanley said on Monday that oil prices in the $20s were possible, especially if the dollar surges more against other currencies. "A 15% CNY (Chinese yuan) depreciation alone could send oil into the $20s," the bank said.

Monday's decline adds to last week's more than 10% drop in both Brent and WTI prices.

Goldman Sachs analysts, who have also said oil could hit $20 a barrel, said in a note on Friday that sustained lower prices were needed in the first quarter "so producers will move budgets down to reflect $40 a barrel oil for 2016".

Oil prices have fallen over 70% since the downturn began in mid-2014 as soaring global production sees hundreds of thousands of barrels of crude produced every day without a buyer.

Adding to overproduction is slowing demand, especially in China where growth has dropped to its lowest rate in a generation and experts see few signs of improvement for the next few years.

"Chinese oil data are finally starting to reflect weak economic activity. Implied oil demand in China contracted 4.9% (537,300 thousand bpd) month on month and 2.0% (216,700 thousand bpd) year on year in November, the first decline since July 2014," Barclays bank said in a note on Friday.

"We expect further compression in growth rates this year, with an average of 300,000 barrels per day (2.7%)," it said.