Oil sinks below $42 US a barrel, a 6-year low

The main North American oil contract dipped below $42 US for the first time since 2009 on Thursday, after a report showed high U.S. oil inventories.

West Texas Intermediate (WTI) crude sank as low as$41.92 a barrel at mid-afternoon, a new six-year low. It closed at $42.22, down 2.5per cent today. This time last year, oil was at $94 US a barrel.

• Oil prices are down, gasoline prices are not. What gives?

Western Canada Select, a Canadian oilsands contract, was trading at $22.78. That is a discount of more than $19 to the WTI contract, as Canadian oil gets hit by refinery and pipeline shutdowns.

The TSX index lost 100 points as energy stocks responded to the lower oil price. The Canadian dollar also fell, to 76.57 cents US.

Oil markets were under pressure from China's decision to allow the yuan to sink, which has created doubts about long-term global growth.

Despite a report by the International Energy Administration (IEA) earlier this week showing demand for oil has risen worldwide as energy prices fell, there is so much oversupply that oil remains volatile.

The IEA projectsglobal oversupply will average 1.4 million barrels a day in the second half of this year, straining available storage capacity. The stockpiles are unlikely to clear until the end of 2016.

Adding to theuncertainty are questions over when Iran's oil would be added to the mix because of the removal of sanctions.

The Organization of Petroleum Exporting Countries has left production high since this time last year, in an effort to keep its own market share and drive U.S. shale producers from the market.

But fresh figures out today show U.S. shale production remains high.

The U.S. Energy Information Administration (EIA) estimated that domestic oil production declined by 100,000 barrels per day in July compared with June.

But it points out that supply in the U.S. continues to outpace demand.

The EIA expects U.S. production to continue to decline through mid-2016 before it resumes growing in late 2016, an indication it believes prices will stay low and the glut will continue for at least another year.