Oil stumbles lower as Japan data weighs

Oil slid towards its lowest in six years on Monday (August 17th) as figures showing Japan’s economy shrank in the second quarter added to fears about demand in Asia.

US crude dipped more than one per cent to trade just above $42 a barrel, while Brent crude in London also fell.

Japan’s economy, still the world’s third largest, contracted by 0.4 per cent in the three months to June, falling 1.6 per cent year-on-year.

Although a smaller drop than forecast, the data nevertheless added to fears that slowing demand across Asia will be a drag on oil prices.

Another weekly jump in US drilling rigs, coupled with record-breaking output from Oman, also weighed on prices.

Oil continues to come under pressure following China’s currency devaluation last week, which suggested weak demand from Asia’s largest economy will continue and could worsen.

Meanwhile, gold moved higher as investors sought shelter from fears China could let the yuan fall further.

Uncertainty over the impact of the unexpected depreciation is fuelling doubts the Federal Reserve will move to hike rates this year, sending the dollar index sharply lower last week.

By Monday though, reduced fears about the pace of decline in the yuan saw the dollar rise from last week’s trough.

USD/JPY climbed 0.25 per cent to trade above the 124 handle, while the US dollar index was up by a similar margin to knock on the 97 level.

While the greenback bounced back on Monday, Malaysia’s ringgit held near a 17-year low and Turkey’s lira was anchored at its weakest ever level.

In equities, European shares were higher, rebounding from their worst week in six, with the FTSEuroFirst 300 index up nearly one per cent.

The commodity-heavy FTSE 100 was trading slightly lower, while the DAX in Germany climbed 0.3 per cent. Earlier, shares in Asia fell broadly overnight with the Nikkei in Japan the only riser.