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JUN 05 2012

Brent crude below $100, hit by weak economic data

  • Economic Times, ET Bureau / Hyderabad
  • Created: Tue 05th JUN 2012

Brent crude oil prices fell for a fourth straight day on Friday, dropping under $100 a barrel to a 16-month low, as weak U.S. and Chinese economic data thrashed markets and sent investors to perceived safer havens.

Data showing U.S. job growth stumbled in May and the jobless rate rose for the first time in nearly a year, added to worries about the global economy's health. A report from No. 2 oil consumer China, indicated a slowdown in that country's manufacturing sector, which dragged crude down early on Friday.

That weak data added to ongoing worries the euro zone crisis will hurt fuel demand, to pull Brent crude down its 2012 peak of more than $128 a barrel in early March.

"The negative employment data caps the recent deterioration in global economic data," said John Kilduff, partner at Again Capital in New York.

"From China to Europe to the U.S., all the data have shown real slowing."

In May, both Brent and U.S. crude posted their biggest monthly losses since late 2008, as trader focus on the potential disruption of Iranian oil supplies due to Western sanctions against Tehran was countered by the wider economic concerns.

Friday's bearish sentiment swept across markets, with U.S. stocks down sharply to erase most of the year's gains and the Thomson Reuters-Jefferies CRB commodity index .CRB down 1.7 percent to the lowest level since September 2010. Gold rose more than 3 percent on safe-haven buying and U.S. government debt yields fell to record lows. <GOL/> <US/>

Brent July crude tumbled $3.44 to settle at $98.43 a barrel, the weakest close since January 27, 2011, having pushed below $100 for the first time since October. Brent's intraday low of $97.54 was the weakest since February 2011.

The weekly loss of 7.86 percent was front-month Brent's fifth straight weekly slip and it five-week slump of 17.86 percent was the biggest five-week percentage decline since the period to June 6, 2010.

U.S. July crude also fell a fourth straight day, shedding $3.30 to settle at $83.23 a barrel, the lowest settlement since October 7. The intraday low of $82.29 also was the lowest since October.

Front-month U.S. crude fell 8.4 percent on the week, also a fifth straight weekly slide. The 20.68 percent slide in five weeks is the biggest percentage five-week drop since the week ending January 18, 2009.

Brent trading volumes were strong, 50 percent above the 30-day moving average, while U.S. crude futures were 33 percent above their 30-day average.

Friday's drop plunged both contracts further into oversold territory based on the 14-day relative strength index. U.S. crude dropped to just over 16, the lowest since 1987 and well under the 30 level that is considered a technical indication of an oversold condition. Brent dipped to around 17, a level not hit since 2008.

Money managers cut their net long U.S. crude futures and options positions in the week to May 29, the U.S. Commodity Futures Trading Commission on Friday.

Refined product futures also tumbled. U.S. RBOB gasoline for July delivery slid more than 2 percent to hit an intraday low of $2.6326 a gallon, the lowest for front-month gasoline since December.

Heating oil lost nearly 3 percent and hit a low of $2.6085, lowest for front-month price since January 2011.


Further pressure came from reports illustrating a widespread slowing in manufacturing. In addition to the Markit's Eurozone PMI slump to its lowest since June 2009, the Markit/CIPS PMI showed Britain's manufacturing sector shrank at its fastest pace in three years in May.

U.S. manufacturing also slowed in May, though a gauge of new orders rose to its highest in over a year, according to an industry report.

The oil price rout on Friday continues a retreat that began after Brent rallied above $128 a barrel in March, the highest since 2008. That rally was due to concerns over the loss of Iranian oil due to tighter sanctions and to other supply disruptions.

The threat to economic growth from the high prices sparked consumer countries to consider releasing strategic reserves and caused top exporter Saudi Arabia to raise production in an effort to bring prices back to $100.

"We want a price around $100, that's what we want," Saudi Oil Minister Ali al-Naimi said on May 13. "A $100 price is great."

While the price slide is considered unlikely to prompt Saudi Arabia to quickly cut production, especially with the European Union's embargo on Iranian oil still slated for July, other OPEC countries need a higher price to balance budgets.


Oil China United States Saudi Arabia Organization of Petroleum Exporting Countries Iran Europe

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