Oil prices tumbles to below $70 a barrel
September 22, 2009
Oil prices tumbled on Monday as the market fretted about energy demand in China, considered key to a recovery in global demand, and succumbed to pressure from a slightly stronger dollar.
New York's main contract, light sweet crude for October delivery, dropped to $69.71 (R519) a barrel, a decline of $2.33 from the Friday closing level.
In London, Brent North Sea crude for November delivery fell $2.63 to settle at $68.69 a barrel.
"Prices came under pressure this morning on concerns about the robustness of the global economy and Chinese diesel demand," Barclays Capital analysts said in a note to clients.
The analysts said that remarks by Sinopec, Asia's biggest refiner, had stoked the concerns.
"These fears were fuelled by Sinopec's comments about diesel demand continuing to lag behind, with Sinopec's fuel sales lower year-over-year in the year-to-date," they said.
But the Barclays analysts predicted that Chinese diesel demand would improve in the coming months, due to a restocking bout by US retail giants that should have a knock-on effect on China through improved trade.
The oil market on Monday was "disproportionately weak," said independent trader Ellis Eckland, who noted "a minor weakness in the equity market and a bit of a recovery in the dollar."
"The market was ready to sell," he said, as doubts about the strength of energy demand began to circulate.
Eckland said many traders were nervous about a possible rapid drop in oil prices.
The doubts were "driven by the fact that you're in the weak demand season, the global recovery is still weak, the inventories are higher year-on-year, and there was a lot of bearish comments in the media," he said.
Oil prices have sunk to the lower end of the narrow bank in which they have traded for several weeks, after having climbed as high as $72.51 last week.
"You hear people say it didn't get past $72-$73 and now they want to sell it, and then if it can't go below $67-$68 they're ready to buy it," said Andy Lipow of Lipow Oil Associates.
The dollar firmed slightly against the euro, ahead of a Federal Reserve interest rate decision due on Wednesday.
The Fed is widely expected to hold its key federal funds rate at zero to 0.25% as the world's largest economy shows early signs of emerging from a long recession.
A stronger greenback makes dollar-priced oil more expensive for holders of weaker currencies and tends to dampen demand, and thus prices.
Energy consultancy Centre for Global Energy Studies said in a monthly report on Monday that crude oil prices were unlikely to rise significantly this year, unless there were "clear signals" the world economy was "pulling out of recession in a sustainable fashion."
"High inventories, particularly of middle distillates, are putting a ceiling on oil prices at the moment... and this will only lift once those inventories start to be drawn down," the report said.
Distillates, diesel fuel and heating oil, are moving into focus ahead of the northern hemisphere winter when demand for heating fuel peaks.
In a BBC interview broadcast Monday, the head of French oil giant Total, Christophe de Margerie, said that oil prices could climb far above $100 a barrel unless there is greater investment in energy exploration.
The Total chief executive also said that oil prices at their current level of roughly $70 were too low to support long-term investment by his company. - I-Net Bridge
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