The fierce selling triggered a renewed scramble to buy options betting on a further slide, sending the CBOE volatility index.OVX, a gauge of options premiums based on moves in the USA oil exchange traded fund, over 13 percent higher to more than 63 – close to its highest level in seven years.
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Stock markets look set for another disappointing start to the week on Monday following another rough session in China which came despite the yuan showing some signs of stability.
“There are no technicals holding up the price so we’re looking at a falling knife”, said Jason Schenker, president of Prestige Economics LLC in Austin, Texas.
The pan-European FTSEurofirst 300 index also gave up initial gains and ended down 0.4 percent.
Wall Street traded lower overnight with the price of oil and intensifying concern about China, while investors awaited the start of the U.S. earnings season.
The plunge in oil prices is a constant reminder of the glut in the market.
Global benchmark Brent crude futures fell over 3 percent to a low of $30.43 per barrel on Tuesday, a level last seen in April 2004, before edging back to $30.64 by 0714 GMT, still down 91 cents from their last settlement.
European stocks rose on Tuesday, helped by solid updates from retailers and companies in other sectors but ended off earlier highs as volatile oil prices turned sharply lower. The fall in the Chinese manufacturing index, the Saudi-Iran standoff and North Korean nuclear test have all had a significant impact on shaping oil price trends.
Traders and analysts say ballooning oversupply and China’s slowing economy are the main reasons for the oil price rout.
Futures fell as much as 2.2 percent in NY after dropping 5.3 percent Monday.
Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent, Morgan Stanley analysts including Adam Longson said in a research note dated January 11. Germany’s DAX Index fell 0.3 percent, France’s CAC 40 Index slid 0.5 percent, while the UK’s FTSE 100 Index retreated 0.7 percent.
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With prices now below break-even costs for many producers, particularly in the once-thriving USA shale patch, and the costly Canadian oil sands producers barely making $15 a barrel, an extended slump has caused financial pain to flare across the world, threatening corporate bankruptcies and fiscal strain.
