Oil prices hit six-year low on oversupply and China woes

Analysts warn that oil prices could fall even further

Oil prices have slumped to six-year lows as global stock markets continue to fall on concerns over a slowing Chinese economy.

Brent and US crude futures fell below $45 and $40 a barrel respectively as global investors assessed the contagion risks of China's volatile stock market.

Recent data has suggested that China's economic growth continues to slow down.

As well as the volatility in Chinese shares, there are fears of a protracted effect on demand for commodities.

China's slowdown is expected to pull down other regional economies, affecting energy and raw material consumption.

The unstable Chinese market has also led to worries that the problems in the world's second largest economy may have far-reaching global consequences.

China's benchmark Shanghai Composite index on Monday shed as much as 8%, while markets in Hong Kong, Tokyo and Sydney all dropped by more than 4%.

On Friday, figures showed China's factory activity in August shrank at its fastest pace in more than six years.

'More weakness likely'

Official figures have indicated that China's economic growth is continuing to slow. For the three months to the end of July, the economy grew by 7% compared with a year earlier - its slowest pace since 2009.

Bernard Aw, market strategist with trading firm IG, said given the tepid demand, it was hard to fathom why oil producers were pumping out more crude.

Opec producers, notably Saudi Arabia, and Iraq were producing more oil than necessary, while US stockpiles were nearly 100 million barrels above the five-year seasonal average.

"At this rate, the fundamentals of oil are going to get worse before it gets better as the supply glut widens. This means we are likely to see more weakness in oil futures in the coming sessions," Mr Aw said.

Oil dealers are also anticipating revised US economic growth data for the second quarter, to be released on Thursday.

The figures could be key to the Federal Reserve's thoughts on when to raise interest rates.

An eventual interest rate rise is expected to strengthen the US dollar, which in turn would make dollar-priced oil more expensive for buyers using weaker currencies, once again affecting demand.