WTI crude for delivery in October fell $2.21, or 5.5%, to settle at $38.24 a barrel on the New York Mercantile Exchange. That was the lowest level for a most-active contract since February 2009. Nymex prices had tapped a low of $37.75.
October Brent crude on London’s ICE Futures exchange sank $2.77, or 6.1%, to $42.69 a barrel, dropping below $43 for the first time since March 2009. It is now trading nearly 59% below its one-year high of $103.19 reached in August last year. These are “epic times in the oil market,” said Matt Smith, director of commodity research at ClipperData. Still, “while the market does look weak from a fundamental perspective, sub-$40 [Nymex] oil means a lot of bad news is being priced in,” he said.
The oil losses deepened in the wake of losses in stock markets around the globe. In the U.S., the Dow Jones Industrial Average plunged 1,000 points at the open, then attempted to pare those steep losses. Oil prices have been under pressure for several months due to oversupply concerns, but the slump has deepened in recent weeks on fears of a sharp slowdown in the Chinese economy and its impact on global markets and energy demand.
On Monday, the Shanghai Composite Index closed 8.5% lower, marking its worst one-day percentage performance since February 2007. “From a pure demand perspective, the China risk is pretty much priced in,” said Matt Parry, senior oil analyst at the International Energy Agency in Paris, in an email. “The doomsday scenario at the moment, I suppose, is much weaker emerging-market growth worldwide.” “The forward-looking balances, however, show signs of tightening, as relative demand growth in 2015-2016 outpaces forecast non-OPEC supply—the key wildcard being OPEC and Iran in 2016,” he said.