Oil prices fell sharply again on Tuesday to as low as $105,46 a barrel — nearly 30% down from the recent record high of just more than $148 — as Hurricane Gustav turned out to be less severe than had been feared.
United States traders returning to their desks from the Labor Day weekend sold oil after earlier falls on Monday, helping to push the price down about 8% during the course of the trading session to its lowest price since early April.
Many refineries on the US Gulf Coast had shut as Gustav closed in, but after the hurricane dissipated, fears that oil supplies to the US could be disrupted for a sustained period receded as initial reports suggested damage to oil infrastructure had been limited. Traders then turned their attention to weakening demand from a slowing world economy, pushing the price down further.
“The market continues to be weighed down by worries of a global economic downturn and slowing oil demand in developing markets,” said Victor Shum, analyst at Purvin & Gertz consultancy in Singapore. “Action by Opec and supply-side concerns should put a backstop to any sharp price drop.”
Ministers from the Organisation of Petroleum Exporting Countries (Opec) are meeting next week in Vienna and have signalled they may reduce output to defend the $100-a-barrel level. Iran’s Opec envoy on Tuesday called for a cut of 1,5-million barrels a day in production to prevent the price falling below $100.
US light crude futures tumbled almost $10 a barrel at one point before recovering to trade at around $109 a barrel as the European market closed. In London, Brent crude fell as far as $104,14 a barrel but later bounced towards $107.
Analysts said the commodity had broken below its 200-day moving average, which could prompt further price drops.
Crude was also put under pressure by further strength in the dollar, in which oil is priced. The dollar gained to about $1,78 to the pound and $1,453 to the euro, hitting its highest level this year against a basket of major currencies. That helped push down other commodities also priced in the US currency. Gold fell 3% to below $800 an ounce, while copper dropped to a seven-month low.
The recent sharp falls in commodity prices, which had all surged in the first half of the year, showed up in the key US ISM manufacturing survey for August, where companies reported that cost pressures were easing rapidly because of tumbling energy prices.
The weakness in commodity prices also prompted a big rise in the US stockmarket, with the Dow Jones industrial average jumping nearly 2% at one point to 11,790, more than reversing last Friday’s sharp falls. It later settled down to be up about 1,5% on the day.
Dealers felt that lower prices of energy and other commodities could help revive consumer spending in the world’s largest economy and bear down on inflation, thus enabling the Federal Reserve to hold interest rates low for longer.
In London the FTSE 100, though, did not share the Dow’s exuberance. It closed barely changed at 5,620, hindered by falling shares in oil and mining companies.–