Oil skids to $70 on economic recovery concerns

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06/16/2009 | 12:49 PM

SINGAPORE — Oil prices skidded to near $70 as investors mulled whether a three-month rally went too far, too fast amid high supplies and weak demand.

Benchmark crude for July delivery fell 57 cents to $70.04 a barrel by midday Singapore time in electronic trading on the New York Mercantile Exchange. On Monday, it fell $1.42 to settle at $70.62

Oil has doubled since March on expectations the worst of the global economic slowdown is over.

But bad economic news could puncture investor optimism. An index of New York manufacturing released the Federal Reserve Bank of New York on Monday indicated that demand weakened in June.

The Standard & Poor's 500 index, which had risen 40 percent since March 9, dropped 2.4 percent Monday.

"I wouldn't be surprised if oil goes back to the low $60" level, said Clarence Chu, a trader at market maker Hudson Capital Energy in Singapore. "The rally hasn't been driven by fundamentals, which are still pretty weak."

Wednesday's release of petroleum inventory data from the Energy Department's Energy Information Administration could provide some insight about crude demand. Analysts expect a drawdown of 1.7 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Stocks have fallen for several weeks, but are still near 19-year highs.

Traders are also eyeing the US dollar, as a weaker American currency would bolster prices since investors often look to commodities such as crude as a hedge against inflation.

The euro was steady at $1.3813 on Tuesday, after dropping from $1.4015 on Friday.

In other Nymex trading, gasoline for July delivery was steady at $2.05 a gallon and heating oil dropped 1.02 cents to $1.81. Natural gas for July delivery slid 1.9 cents to $4.16 per 1,000 cubic feet. - AP

From GMANews.tv; see the source article here.

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Oil price closes above US$70

Posted: 10 June 2009 0535 hrs

A worker turns a wheel-tap at the Tawke oil field in Iraq

NEW YORK: New York oil prices closed on Tuesday above 70 dollars per barrel for the first time since November amid hopes of an economic recovery and US dollar weakness.

New York's main futures contract, light sweet crude for delivery in July, ended at 70.01 dollars, up 1.92 dollars from Monday and the highest closing price since November 4.

London Brent North Sea crude for July delivery gained 1.74 dollars to 69.62 dollars.

Analysts said renewed weakness in the dollar amid concerns over staggering US debt and higher US Treasury bond yields - which could spark higher interest rates - pushed oil prices higher.

It was "clearly the acceleration and the decline of the value of the dollar, a renewed and remarkable phenomenon," said John Kilduff of MF Global, citing the reason for the higher oil prices despite falling demand.

A weak US currency makes dollar-priced crude cheaper for buyers holding stronger currencies. In turn, that tends to stimulate demand and push the market higher.

The US Energy Information Administration (EIA), the Energy Department's analytical and statistics wing, on Tuesday said global oil demand was expected to fall two percent to 83.7 million barrels a day.

"Instead of blaming speculators or saying that there is no fundamental reason for oil to be where it is, many are finally starting to understand what has been diving oil," said Phil Flynn of Alaron Trading.

"Oil has been driven by the credit crisis. Oil has been driven by the dollar. Oil has been driven by the stimulative and inflationary effects of quantitative easing and record budget and trade deficits," he said.

The United States is using unconventional measures such as mopping up bonds from the market to prevent interest rates from rising, after bringing down federal fund rates to virtually zero percent to stimulate economic recovery.

Data indicating that the worst may be over for the recession-battered US economy, the biggest in the world, are stoking hopes of a rebound for energy demand.

"The bounce in commodity prices is likely to be sustained while... expectations of recovery continue to build," London-based consultancy Capital Economics said in a note.

It cautioned however that "disappointment at the strength of the economic expansion should take the heat out of the latest rally."

"It is a simple story: weak dollar, strong market, plus flow of funds from commodities investors," added Deutsche Bank analyst Adam Sieminski.

After plunging from record highs above 147 dollars last July on supply concerns, oil prices touched multi-year lows in December, at one point nearing 32 dollars a barrel, as the economic slowdown crushed demand for energy. - AFP/de

From ChannelNewsAsia.com; see the source article here.

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