Brent dips below $101 on demand worries
Singapore, June 24, 2013
Brent crude futures traded below $101 a barrel on Monday, hurt by a stronger dollar and concerns over slower growth in demand for oil in the United States and China.
The European benchmark declined nearly 5 percent last week in its biggest weekly drop since early April, after Federal Reserve Chairman Ben Bernanke laid out a strategy for paring monetary stimulus, broadly sapping demand for commodities.
The step by the US central bank also lifted the dollar, making it more expensive for holders of other currencies to buy greenback-denominated oil.
Against a basket of major currencies, the dollar index rose 0.31 per cent to a two-week high after ending last week up 2.2 per cent in its largest weekly gain since November, 2011.
Brent crude was down 40 cents at $100.51 a barrel by 0444 GMT on Monday, while US oil dropped 20 cents to $93.49 a barrel.
"Global money supply will be wound back and the level of investment in commodities like oil will be pulled back," said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
"In the long term the cessation of that huge stimulus is going to pressure commodity markets."
US crude oil is expected to revisit its April 18 low of $85.61 a barrel over the next three months, with a good chance of dropping through this level towards the June 28, 2012 trough of $77.28 a barrel, according to Reuters market analyst Wang Tao.
A dimming outlook for oil demand growth in China, the world's second-largest economy, also dragged on prices. Manufacturing activity dipped to a nine-month low in June raising fears the country could miss its growth target of 7.5 per cent for this year.
"Policymakers in China are unlikely to be injecting more stimulus into the economy at the moment as Beijing is looking to rebalance the economy from one of consumption as opposed to an economy reliant on exports," said Lee Chen Hoay, investment analyst at Singapore-based Phillip Futures.
"This is likely to have an impact on manufacturing activity and as such oil demand is likely to be slightly hit. A further downward revision of oil demand can be expected inside the second half of the year."
The International Energy Agency (IEA) revised its oil demand growth forecast for China earlier this month to 3.8 per cent from 3.9 per cent. - Reuters