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Oil down as ongoing fears over possible US recession spark

Monday, February 4, 2008

LONDON (Thomson Financial) - Oil continued lower as fears over a possible US recession continued to spark worries that demand for crude will wane going forward. In addition, prices were also under pressure from reduced buying from funds.

Data out on Friday showed long positions -- or bets on price falls -- from speculators on NYMEX fell 20 pct last week, after dropping 56 pct the week before.

The data "is a concern for those oil bulls as hedge fund money has been a key driver to prices surging so high", said analysts at Sucden. They added that oil was also down on fears over a possible US-led global growth slowdown.

At 1.00 pm, New York's WTI crude for March delivery was down 27 cents at 88.69 usd per barrel, having plunged 2.79 usd to close at 88.96 usd on Friday.

In London, Brent crude for March delivery was down 23 cents at 89.22 usd per barrel.

In earlier trades, oil was up slightly as a rebound in global equities temporarily eased fears over the oil demand outlook.

However, those fears have since resurfaced, with traders still concerned over data out Friday showing that the US economy lost 17,000 jobs in January, recording its first fall since August 2003.

Prices fell nearly 3 pct on Friday because of the data, which even worked to overshadow news that OPEC had opted to keep output levels unchanged for now and was even considering cutting output in March.

The news came out of the OPEC production meeting in in Vienna, where the cartel itself expressed concern over the US economic outlook and its impact on oil demand going forward.

Earlier today, however, senior OPEC ministers downplayed speculation that OPEC is considering cutting output, telling reporters in London that all options are on the table for the March meeting.

OPEC aside, analysts say oil prices could remain range bound in the near term, especially if global equities stabilise on the belief that US policy makers are doing everything in their power to avoid a recession.

The US Federal Reserve has cut rates by a combined 125 basis points over the past two weeks, while Washington is currently fast-tracking the implementation of a 150 bln usd economic stimulus package.

"Undoubtedly price action in the oil markets has tracked equity markets over recent sessions and there is little to suggest that this will change in the week ahead.

"Brent crude is liable to trade within a broad range of 88.80-92.00 usd with a marginal bias to the upside on geopolitical developments in Nigeria and Iran," said Bank of Ireland analyst Paul Harris.

Oil prices have hovered around the 90 usd level for some three weeks now, as Fed rate cuts and below average stockpiles in the OECD region offset US recession fears.

Earlier in January, prices rose to an all-time record of 100.09 usd a barrel.

Posted by MOHAMED SAID at 7:19 AM  

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