Oil prices drop amid US economic concerns

Oil prices slipped more than $1 a barrel on Monday as traders worried that the flagging United States economy would cause oil demand to soften.

Oil’s sharp decline started last week. Crude futures started plunging after the US Federal Reserve-backed sale of Bear Stearns to JPMorgan Chase created fears of deeper economic problems.

Prices dropped by about 10% during the shortened trading week from a trading record of $111,80 hit last Monday.

“The collapse of Bear Stearns has caused investors to focus more on how a recession in the US would cut oil demand,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “Today we’re seeing some pullback and some profit-taking too.”

Light, sweet crude for May delivery dropped $1,71 to $100,13 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore.

The contract on Thursday fell by 70 cents to settle at $101,84 a barrel.
The market was closed for Good Friday.

Shum said oil’s price swoon may not last for long. “The US economic troubles on the one hand would undermine oil prices ... but so long as the US dollar remains weak, there will be support for oil prices as commodities like oil and gold as these are seen as a hedge against the falling dollar.

“It’s a tug of war, and oil pricing has not yet collapsed, it has simply pulled back,” he said.

Most investors expect the Federal Reserve to cut interest rates several more times this year, moves that are sure to put new pressure on the dollar. Lower interest rates tend to weaken the greenback, driving investors to commodities such as oil that they view as a hedge against inflation.

A lower dollar also makes oil less expensive to overseas investors—a trend that reverses when the dollar strengthens.

Prices were pressured when the US Labour Department said on Thursday the number of people filing for unemployment benefits jumped by 22 000 last week, much more than expected. A sharp slowdown in the economy could reduce demand for oil and petrol.

On Wednesday, the Energy Department said petrol demand dropped by 1% last week.

In other Nymex trading, heating oil futures lost 1,22 cents to $2,965 a gallon (3,8 litres), while petrol prices fell 0,76 cents to $2,5975 a gallon. Natural-gas futures added 1,7 cents to $9,082 per 1 000 cubic feet.

In London, Brent crude futures fell $1,28 to $99,10 a barrel on the ICE Futures exchange.—Sapa-AP

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