Oil plumbs 6.5-year low on oversupply, China woes

The oil market extended its dramatic descent this week to strike a 6.5-year nadir close to $40 per barrel on mounting fears of oversupply and poor demand, particularly from China.

Tumbling world stock markets fanned worries that weak global economic growth will hurt commodity demand, especially in the wake of downbeat Chinese manufacturing data.

However, gold was catapulted higher, benefitting from the precious metal's status as a safe bet in times of turmoil.

OIL: New York's light sweet crude plunged Friday to $40.04 per barrel, the lowest level since March 2009, as the market was rattled by China jitters.

London's Brent crude hit $45.21, a point last witnessed in mid-January and not far off a six-year trough.

Sentiment has dived since China's central bank devalued its yuan (renminbi) currency last week in a surprise move seen as aimed at boosting the country's flagging exports.

However, in more bad news, the preliminary reading of Caixin's Purchasing Managers' Index (PMI) came in at 47.1 this month, its worst reading since March 2009 and significantly below analysts' forecasts.

"The renewed slump in Caixin's PMI for the manufacturing sector in China in August is likely to increase concerns about demand among market participants, especially since the oil market is significantly oversupplied," said Commerzbank analysts in a research note.

European, Asian and US shares all sank Friday, continuing a global equities sell-off on the back of China's economic troubles.

"Oil prices continue to be plagued by the supply glut problem," added Bernard Aw, market strategist at IG Markets.

"Sharp falls in global equities, particularly US shares, further contributed to worries that global growth would be sluggish. This suggests that demand for energy may remain tepid."

Analysts fear a slowdown in China, the world's second-biggest economy, could drag on global growth and curb energy demand -- bad news for oil prices at a time when markets are already oversupplied with crude.

The market also took a tumble on Wednesday as a surprise rise in US stocks fuelled supply glut fears.

The US Department of Energy said commercial oil stockpiles rose 2.6 million barrels in the week ending August 14, and reported a 300,000 barrel rise at the closely watched Cushing, Oklahoma, trading hub.

The US and producers from the Organization of the Petroleum Exporting Countries have decided against cutting high production levels despite falling prices as they fight over market share.

By Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in October tumbled to $45.91 a barrel from $48.95 a week earlier for the September contract.

On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for October slid to $40.91 a barrel from $44.21 for the September contract.