Oil prices recover but market still on edge over China volatility

Oil prices plunged to their lowest in more than a decade on Thursday after the Chinese government allowed the yuan to fall faster than anticipated. The move triggered a rapid-fire selloff in the Chinese stock market that triggered the "circuit breaker” mechanism, halting trading for the rest of the day within an hour of the opening.

China has since suspended the mechanism without saying for how long.

The Shanghai Composite Index opened up 2.2% Friday morning and the Nikkei also gained 0.4% to 17844.59.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in February traded at $33.76 a barrel at 0240 GMT, up $0.49 in the Globex electronic session. February Brent crude on London’s ICE Futures exchange rose $0.43 to $34.18 a barrel.

Oil prices have been under pressure this week because of rising tension between Saudi Arabia and Iran. The escalating rift between the two key oil producers further damps any chance of a collaborative effort to cut global output, the main driver behind the current glut.

The glut is expected to expand more as Iran is prepared to make a full return to the oil market in coming months despite its deepened fissures with the kingdom.

"The rebound is just technical correction. There are hardly any positive news in sight and market confidence in the Chinese economy is dwindling,” said a Singapore-based trader.

Worries of slowing Chinese crude demand have exacerbated the price declines for some time. Some say as China shifts from a manufacturing-based economy to a serviced-based one, the country’s thirst for crude might subside.

 

(WSJ)