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Oil declines amid commodity sell-off as China devalues currency

Market news
Market news

Oil fell amid a broader commodity decline as China’s central bank devalued its currency, making imports of raw materials more expensive in the world’s biggest consumer of metals and energy.

Futures slid as much as 1.1 percent in New York. China, the world’s second-biggest oil user, cut the yuan’s reference rate by a record 1.9 percent, allowing depreciation to combat a slump in exports. The Bloomberg Commodity Index of 22 raw materials, which includes crude, metals and grains, retreated after advancing Monday by the most since February.

Oil has slumped more than 25 percent since this year’s peak closing price in June amid signs the global oversupply that drove crude into a bear market will persist. The Commodity Index in July capped the biggest monthly drop since 2011 on signs of faltering demand in China and expanding gluts. The Bloomberg Dollar Spot Index gained 0.5 percent.

“Devaluation of the yuan means a stronger US dollar and that’s likely to weigh on commodity prices,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone. “This is clearly a stimulus measure and it should be supportive of commodities. We’re seeing a currency affect initially and the stimulatory impacts of this has not been priced in yet.”

West Texas Intermediate for September delivery fell as much as 50 cents to $44.46 a barrel on the New York Mercantile Exchange and was at $44.61 at 3:19 p.m. Sydney time. The contract gained $1.09 to $44.96 on Monday. The volume of all futures traded was about 40 percent above the 100-day average. Prices have decreased about 16 percent this year.

Brent for September settlement was 27 cents lower at $50.14 a barrel on the London-based ICE Futures Europe exchange. It climbed $1.80 to $50.41 on Monday. The European benchmark crude traded at a premium of $5.50 to WTI.

China devalued the yuan by the most in two decades, ending a de facto peg to the dollar that’s been in place since March and battered exports. The change was a one-time adjustment, the central bank said in a statement, adding that it plans to keep the yuan stable at a “reasonable” level and will strengthen the market’s role in determining the fixing.

WTI rose the most in two months on Monday as Chinese crude imports climbed to a record in July. Overseas purchases gained nearly 30 percent, driven by buying from small private refineries, according to preliminary data released by the Beijing-based General Administration of Customs on Saturday.

In the US, crude supplies probably slid by 2 million barrels last week, according to a Bloomberg survey before Energy Information Administration data Wednesday. Shale output will decline for a fifth straight month in September, the EIA projected in a separate report Monday.

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