Monday, August 6, 2007

Oil Plummets towards $73 on Economics Worries

LONDON -- Oil fell nearly 3 percent towards $73 a barrel on Monday, extending the previous session's decline as concern about the United States economy rippled through financial and commodity markets.

Those worries were heightened after U.S. stocks fell on Friday, following a report showing weaker than expected job growth last month and another on slowing service sector growth.

"The macro picture does not look good," said Nauman Barakat, senior vice president at Macquarie Futures USA. "The subprime crisis is also spilling over into the commodities sector, and in particular the energy."

U.S. crude fell $2.15 to $73.33 by 1415 GMT and earlier slipped to $73.21, the lowest since July 25. London Brent lost $2.40 to $72.35.

"The sell off was continued from Friday and largely due to the decline in the U.S. financial markets. Some investors may have taken risk adjustments and are selling out of liquid commodities assets to cover commitments in other markets," said Gerard Burg at the National Bank of Australia.

"Apart from the U.S. factor, there are no major fundamental stories dragging down prices."

Markets are being hit by the prospect that the borrowing that drives the financial system will either become prohibitively expensive or dry up completely as a result of risk repricing.

This began with difficulties and losses in the U.S. subprime — or risky — mortgage business but has spread to other areas.

European shares opened more than 1 percent lower before recovering slightly, while U.S. stocks rose at the open. Copper prices fell to a five-week low.


U.S. crude has eased since touching a record high of $78.77 last week.

Oil has risen due to real and threatened disruptions to crude oil supply, constraints at oil refineries, resilient fuel demand and a flow of investor money into oil and other commodities.

The reluctance of the Organization of the Petroleum Exporting Countries, which began curbing supply late last year, to increase crude output has limited losses.

OPEC, source of more than a third of the world's oil, meets on Sept. 11 to set production policy. Some officials have said the exporter group does not need to increase supplies.

The longer the group keeps a lid on shipments, the greater the chance of a further rally in prices, Goldman Sachs said.

"We maintain that every day that goes by without a significant recovery in Middle East exports, the price risk becomes increasingly skewed to the upside," the bank said.

No comments: