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Oil drops to new lows for 2011, again
Source: Agencies |
October 5, 2011, Wednesday
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Online Edition
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OIL prices can't find a leg to stand on.
Many of the key factors that drove oil to three-year highs in May - fears of growing Middle East tensions, rising Chinese demand, bullish views from investment banks and expectations of an aggressive US stimulus plan - have been diminished.
Meanwhile, a looming financial crisis in Europe has spooked energy markets as it raises the specter of another global recession. As a result, oil prices have plunged. Benchmark crude has dropped 32 percent since peaking near US$114 per barrel in late April. Oil slipped as low as US$74.95 yesterday, the cheapest price since September of last year. It recovered somewhat, but remains below US$76 per barrel.
If oil holds at that level, or falls further, gasoline will become cheaper. That would save US drivers roughly US$5.1 billion over the next three months. The drop also means homeowners could see lower heating bills this winter.
This could give US consumers more money to spend at retail outlets, restaurants and elsewhere. Lower oil prices should also lead to a decrease in fuel costs for shipping companies and airlines.
But there is a downside: the decline reflects an increasingly dim view of the world economy. Oil demand was expected to rise sharply this year as factories expanded production and consumers bought more cars. Economists still expect global demand for oil to grow but at a slower pace.
The Paris-based International Energy agency reduced its forecast for global demand this year by about 60,000 barrels a day to an average of 89.5 million barrels a day.
Goldman Sachs has slashed its 12-month expectation for benchmark crude by US$10.50 to US$116 per barrel and it cut its Brent crude forecast by US$7.50 to US$122.50 per barrel.
In a separate report that could have implications for the energy markets, the investment bank cut its expectations for economic growth in China as the US and other countries order fewer Chinese-made products.
Wunderlich Securities also cut its forecast for oil, citing the "unrelenting stream of bad news dominated the headlines."
In yesterday trading, Brent crude lost US$1.92 to finish at US$99.79 per barrel in London. That's the first time Brent ended lower than US$100 since February. But Brent, which is the benchmark for many international varieties of oil, is still up 5.3 percent for the year.
The benchmark US crude dropped for a third day, giving up US$1.94 to end the day at US$75.67 a barrel on the New York Mercantile Exchange. It's down 17.2 percent so far this year.
Oil fell early in the day as Greece, the center of Europe's financial crisis, said it has enough money to pay its bills until November. Europe's leaders are still deciding whether to give it more emergency loans.
"If they don't work out a deal to handle Greece's credit problems, then confidence goes away in their ability to handle other euro zone countries with budget problems," PFG Best analyst Phil Flynn said.
In other energy commodities, heating oil gave up 2.95 cents to finish at US$2.7234 per gallon and gasoline futures lost 2.26 cents to finish at US$2.4884 per gallon. Natural gas rose 2.1 cents to end at US$3.638 per 1,000 cubic feet.
Many of the key factors that drove oil to three-year highs in May - fears of growing Middle East tensions, rising Chinese demand, bullish views from investment banks and expectations of an aggressive US stimulus plan - have been diminished.
Meanwhile, a looming financial crisis in Europe has spooked energy markets as it raises the specter of another global recession. As a result, oil prices have plunged. Benchmark crude has dropped 32 percent since peaking near US$114 per barrel in late April. Oil slipped as low as US$74.95 yesterday, the cheapest price since September of last year. It recovered somewhat, but remains below US$76 per barrel.
If oil holds at that level, or falls further, gasoline will become cheaper. That would save US drivers roughly US$5.1 billion over the next three months. The drop also means homeowners could see lower heating bills this winter.
This could give US consumers more money to spend at retail outlets, restaurants and elsewhere. Lower oil prices should also lead to a decrease in fuel costs for shipping companies and airlines.
But there is a downside: the decline reflects an increasingly dim view of the world economy. Oil demand was expected to rise sharply this year as factories expanded production and consumers bought more cars. Economists still expect global demand for oil to grow but at a slower pace.
The Paris-based International Energy agency reduced its forecast for global demand this year by about 60,000 barrels a day to an average of 89.5 million barrels a day.
Goldman Sachs has slashed its 12-month expectation for benchmark crude by US$10.50 to US$116 per barrel and it cut its Brent crude forecast by US$7.50 to US$122.50 per barrel.
In a separate report that could have implications for the energy markets, the investment bank cut its expectations for economic growth in China as the US and other countries order fewer Chinese-made products.
Wunderlich Securities also cut its forecast for oil, citing the "unrelenting stream of bad news dominated the headlines."
In yesterday trading, Brent crude lost US$1.92 to finish at US$99.79 per barrel in London. That's the first time Brent ended lower than US$100 since February. But Brent, which is the benchmark for many international varieties of oil, is still up 5.3 percent for the year.
The benchmark US crude dropped for a third day, giving up US$1.94 to end the day at US$75.67 a barrel on the New York Mercantile Exchange. It's down 17.2 percent so far this year.
Oil fell early in the day as Greece, the center of Europe's financial crisis, said it has enough money to pay its bills until November. Europe's leaders are still deciding whether to give it more emergency loans.
"If they don't work out a deal to handle Greece's credit problems, then confidence goes away in their ability to handle other euro zone countries with budget problems," PFG Best analyst Phil Flynn said.
In other energy commodities, heating oil gave up 2.95 cents to finish at US$2.7234 per gallon and gasoline futures lost 2.26 cents to finish at US$2.4884 per gallon. Natural gas rose 2.1 cents to end at US$3.638 per 1,000 cubic feet.
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