The oil drilling rig Polar Pioneer is towed toward a dock in Elliott Bay in Seattle. Image Credit: AP

London: US oil prices fell towards six-year lows on Tuesday after stock markets tumbled in China, the world’s largest energy consumer, adding to worries about global fuel demand at a time of heavy oversupply.

Chinese stocks fell more than 6 per cent on Tuesday as the yuan weakened against the dollar, raising fears that Beijing may further devalue the currency. Such a move could decrease China’s consumption and import levels.

Industrial metals, including copper, also traded near six-year lows, adding to bearish market sentiment.

“That is dragging oil lower — it was in bearish territory to start with,” SEB chief commodity analyst Bjarne Schieldrop said.

US crude futures were 20 cents weaker at $41.67 a barrel by 1050 GMT, close to their lowest since early 2009.

North Sea Brent was at $48.54 a barrel, down 20 cents but still some way from its 2015 low of $45.19.

Both crude oil benchmarks have more than halved in value over the last year. They rallied earlier in the year but are now almost a third below their last peak in May. Data shows many speculators have taken huge bets on further falls.

US stockpiles are expected to rise in coming months as refiners reduce operations for maintenance and the summer driving season comes to an end, reducing demand for US crude.

Many oil traders are positioning themselves to profit from a further drop in US prices, buying “puts” — options to sell contracts once they have fallen to a particular level — at prices as low as $35 and even $30 a barrel.

“The amount of queries we’ve received recently about leveraging bets on further price falls has been astonishing,” one broker said.

“It now seems only a matter of time before Brent slips below the 6-1/2-month low of a good $48 per barrel that it recorded a week ago and WTI falls below the 6-1/2-year low of $41.35 it reached at the end of last week,” Commerzbank said in a note to clients.

Underscoring the bearish sentiment, hedge funds cut their net long holdings of Brent crude futures for a fourth straight week, exchange data showed on Monday.

The long-term outlook is bearish, said BMI Research, part of the Fitch ratings agency. It forecast “oil prices will remain anchored until 2018” with global supply growth likely to outstrip the growth in global consumption for the next two years.