Oil prices fell nearly four per cent to below US$70 a barrel Monday as a steep drop in China’s stock market raised doubts about the strength of the U.S. and global economic recovery.
Benchmark crude for October delivery lost $2.78 to settle at $69.96 on the New York Mercantile Exchange, the first time oil has ended a trading day below $70 in about two weeks.
“It’s just a market that doesn’t want to stray too far from $70 a barrel,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. “It looks like we’re probably going to finish this month about where we started, and about where we started the summer.”
China raised some red flags last week as government officials seemed to suggest they would cut back on bank lending in coming months, essentially removing one of the stimuli they have added to the Chinese economy, said PFGBest analyst Phil Flynn.
The Shanghai Composite Index plunged 6.7 per cent on Monday, adding to a nearly three per cent drop on Friday, on concerns of a tightening in bank lending.
“The market is concerned whether or not the Chinese government can engineer a soft landing,” Flynn wrote in his morning report. “How will the futures markets react as they start to remove this historic stimulus?”
Major refiner China Petroleum & Chemical Corp. fell by the daily maximum 10 per cent after the company said it does not expect to significantly boost production, while PetroChina, the Shanghai index’s heaviest weighted share, fell 6.7 per cent.
Commodities also took a hit Monday from a strengthening in the U.S. dollar.
Oil has traded near $70 a barrel for most of the last few months as investors struggle to gauge how robust the U.S. recovery will be.