Global financial markets suffered a third day of new year turbulence after fresh fears for the health of China’s economy and tension between Saudi Arabia and Iran sent the price of oil plummeting to its lowest level in more than a decade.
US benchmark West Texas Intermediate for February delivery fell 70 cents, or 2.1%, to finish $33.27 a barrel on the New York Stock Exchange. WTI had hit a low of $32.10 in early European trading, a level last seen in December 2003.
In London, European benchmark Brent North Sea crude oil for February fell 48 cents (1.4%) to $33.75 a barrel. Earlier Brent had fallen to $32.16, its lowest level since April 2004.  
Share prices were also down, with London’s FTSE 100 closing 64 points lower at 6,073 and New York’s Dow Jones industrial average dropping below the 17,000 level in early trading.
Oil’s slide began in east Asia, where Beijing’s decision to allow its currency, the yuan, to weaken prompted concerns in financial markets that China’s economy is performing much less strongly than suggested by official statistics.
The selling then continued in Europe as dealers calculated that the tension between two of the world’s biggest oil producers - Saudi Arabia and Iran - would prevent Opec from agreeing on production cuts that might stabilise prices by bringing supply into line with demand.
The decline carried on in North America following news that US oil stocks had risen by 10% in the past week - the biggest increase since 1993. At one point, Brent crude was down almost 6% on the day at levels not seen since 2004. Analysts believe the price could tumble below $30 a barrel in the coming weeks.
“With the lack of a strong upward catalyst on the horizon, we are not out of the woods yet [on oil prices],” said Miswin Mahesh, an oil market analyst at Barclays Capital , adding: “Non-Opec production from the North Sea, Canada and Brazil is falling, but not quick enough at a time when demand is weak, partly due to a mild winter in the northern hemisphere.”
New numbers showed the Chinese service sector growing at its lowest level for 17 months, while a fifth consecutive month of weaker manufacturing data led to a 7% fall in equity prices in Shanghai on Monday. The market subsequently stabilised after Beijing first suspended share dealing and then stepped in to the market to buy stocks.
Laura Eaton, analyst at the London-based consultancy Fathom, said China was growing at 2.4% a year rather than the 6.9% indicated by official statistics. She added that the authorities in Beijing were likely to respond by allowing the currency to weaken further in order to boost exports, and by reducing interest rates from 4.35% to zero by the end of 2017.
“China has a longstanding problem of non-performing loans and while policy stimulus may stall the slowdown in growth, it is not going to solve the country’s long-term problems”, Eaton said. She estimated that unemployment, officially 4%, was currently 7% and likely to rise to 11%. Business Pages 5, 7 & 12

Saudi plunge leads Gulf markets down

Gulf stock markets fell sharply yesterday amid a fresh slide of oil. The Saudi stock index sank 4.5%, its biggest daily drop since August, to close at 6,225 points, its lowest finish since December 2011.
The Qatar Stock Exchange plunged 304 points and lost QR15bn in capitalisation. An across-the-board-selling, particularly in the real estate and insurance sectors, led the 20-stock Qatar Index to plummet 3.02% to 9,767.22 points.
Dubai’s index tumbled 3.4% in an almost indiscriminate sell-off. Abu Dhabi dropped 3.2% in a broad sell-off.
Elsewhere in the Gulf, Kuwait’s index fell 1.6% to 5,475 points; Oman’s index dropped 0.5% to 5,365 points, while Bahrain’s index slid 0.7% to 1,202 points. Business Page 1