Global oil benchmark Brent and US crude futures fell to nearly US$32 a barrel yesterday, their lowest since at least 2004, after another free-fall in the Chinese stock market rattled investors already concerned by the world glut in oil.

Although oil prices later bounced off the day’s lows as some bearish traders took profits on short positions, few dealers were willing to call an end to the 18-month slump.

“I wouldn’t say it’s a given right now that we will break below US$30, but I think before the first quarter we will,” said Doug King, fund manager in London for the US$220 million Singapore-based Merchant Commodity Fund.

“And the reason for that is you’re not stopping enough production where it needs to be shut, like in the US.”

US government data on Wednesday showed a 10.6 million-barrel surge in gasoline supplies, the biggest weekly build since 1993, rattling investors already concerned by near-record production and massive stockpiles around the world.

Brent settled down 48 cents at US$33.75, after sliding to a low of US$32.16, a level last seen in April 2004.

US crude West Texas Intermediate (WTI) finished down 70 cents at US$33.27, after hitting a low of US$32.10, the lowest since late 2003.

Even so, some traders think the oil rout has gone too far, too fast since the start of the year. After a frenetic fall of nearly 6 percent in European trading, crude prices retraced much of those losses in mid-morning trade in New York as those with short positions took profit from the four-day slide.

“I’ll say it’s oversold on a short-term basis, though I am an oil bear,” said Tariq Zahir, who trades mostly longer-dated spreads in WTI for the Long Island, New York-based Tyche Capital Advisors fund.

“There’s covering and also some panic buying in an attempt to support WTI at above US$32.”

King concurred with that. “For sure, a minus 7 percent for oil over two days on just China, and a blowup of the whole macro trade, was not something I was expecting to see in the first two days of the year.”

China allowed its yuan currency to slip yesterday, sending regional currencies and stock markets tumbling globally. Stock market trading was suspended less than half an hour after opening after sharp falls triggered a new circuit-breaking mechanism for a second time since its introduction this week.

The crash raises the risk of slowing demand from the world’s no. 2 oil consumer, threatening to prolong an over year-long supply overhang.

Prices also trimmed early losses after violence in the Middle East and North Africa offered a measure of support.

A military training centre in the Libyan town of Zliten was hit by a truck bomb, causing dozens of casualties, witnesses said, while dozens of air strikes hit the Yemeni capital Sanaa.

- Reuters