Brent Prices Hit 18-Month Low | UAE News
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Brent Prices Hit 18-Month Low

Brent Prices Hit 18-Month Low

Poor outlook for the US economy and rising supply pushed oil prices to around $92 per barrel on Thursday.


Brent crude fell to its lowest in 18 months on Thursday at around $92 a barrel on demand growth concerns as China’s factory sector slowed and as the US Fed’s stimulus plan dashed hopes for more aggressive steps to boost the world’s top economy.

An unexpected rise in US crude inventories last week also hit Brent, which has slid 28 per cent from this year’s peak above $128 touched in March.

The Federal Reserve on Wednesday extended until year-end its current program of selling short-term bonds and buying longer-dated ones to bring down borrowing costs, instead of launching a third round of outright bond purchases.

While Fed chairman Ben Bernanke said the US central bank was ready to do even more to help an increasingly fragile US recovery, many investors hoping for a third round of quantitative easing which would have boosted investment flows into riskier assets, like oil, were disappointed.

“In addition to the technical weakness of the market, the weak FOMC action has put more downside pressure on prices,” said Ken Hasegawa a commodity sales manager at Newedge Japan.

“The US economy is not in good shape. You add Europe and poor demand supply situation, and the picture gets much worse. I can’t see any support for crude prices now, it’s all very bearish.”

Brent crude for August delivery fell 56 cents to $92.13 a barrel by 0254 GMT, after falling to as low as $91.98, its weakest since December 20, 2010.

Front-month US crude was down $1.11 cents to $80.34 a barrel, after earlier hitting an eight-month low of $80.39.

China’s factory sector contracted for an eighth-straight month in June with export orders seen at the weakest since early 2009, according to the HSBC Flash Purchasing Managers Index, the earliest monthly indicator of China’s industrial activity.
“Obviously any indication that the Chinese economy is slowing more than expected will put further pressure on oil prices, and commodities,” said Michael Creed, an economist at National Australia Bank.

A further cooling of the Chinese economy would add more pressure to oil markets, particularly since the world’s second-largest economy has been a key driver of demand with economies in Europe and the United States struggling.

Nontheless, without being as stifled by politics, China is seen as better equipped at dealing with a slowdown if need be.

“Unlike the US or Europe, the Chinese government has more tools at its disposal to stimulate the economy, they’ve certainly got a lot of money sitting in reserves.”

“In Europe and the U.S., interest rates are very low, there is little room for fiscal and monetary policy because of politics. The only thing which they can fall back on is QE, which is not the most effective.”

Poor demand and swelling US crude inventories have built up the supply cushion in the world’s biggest market to levels not seen since 1990.

US crude oil stockpiles rose last week by 2.86 million barrels, defying forecasts for a 1.1 million barrel decline, according to data from the US Energy Information Administration.

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