Oil Prices Ease On Demand Worries
Wednesday, July 30, 2008 at 12:57 pm Under Business News 7 views
SINGAPORE :World oil prices eased in Asian trading on Wednesday ahead of a weekly US report on energy stockpiles expected to reinforce worries over slackening demand, analysts said.
New York’s main contract, light sweet crude for September delivery, was 42 cents lower at 121.77 dollars a barrel after slumping 2.54 dollars to 122.19 Tuesday on the New York Mercantile Exchange.
Brent North Sea crude for September delivery eased 29 cents to 122.42 dollars after a drop of 3.13 dollars to settle at 122.71 Tuesday in London.
Prices have dropped about 17 percent since they touched record highs above 147 dollars a barrel on July 11.
The fall is “gigantic in dollar terms,” said Victor Shum, of Purvin and Gertz international energy consultancy in Singapore.
He said a stronger US dollar and worries about slackening oil demand in the United States, the world’s biggest energy consumer, were behind the sharp decline in prices.
A stronger dollar makes crude oil more expensive for buyers with weaker currencies.
Shum said the oil market’s bearish mood has also prompted some investors to move their funds out of oil.
The US Department of Energy was to release its weekly report on energy stockpiles in the country later Wednesday.
“I think the inventory data will continue to show a demand slowdown in the US and will likely add to the worries over a slackening oil demand,” Shum said.
“Markets are finally working as they are supposed to, as higher prices inevitably act as a brake on demand,” said John Kilduff, an analyst at MF Global.
Shum said the market’s bearishness was demonstrated by Royal Dutch Shell’s announcement on Tuesday that it was suspending some crude deliveries after militants sabotaged a pipeline in key oil producer Nigeria.
The impact of the news on pricing was minimal, Shum said.
The Anglo-Dutch oil giant warned it may not be able to meet some supply contracts at its major Bonny terminal before the end of September.
It declared “force majeure” — a legal escape clause allowing producers to miss contracted deliveries because of circumstances beyond their control — for the remainder of July, August and September.
But Shum said supply-side risks from unrest in Nigeria, as well as tensions between the West and Iran over its nuclear programme, help to explain why prices had not fallen below 120 dollars.
“Prices have found a technical support at the low points of 120,” he said.
Another risk factor is the Atlantic hurricane season which can pose a risk to oil facilities and lasts into September, Shum said.
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