Oil slips back on economy uncertainty

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Brent crude oil futures retreated on Wednesday, on worries that the Federal Reserve could phase out its stimulus package, and an uncertain demand outlook for the global economy following weak growth forecasts for China.

Upbeat U.S. housing and consumer confidence data sparked expectations of improved demand from the world's top consumer and saw prices rise sharply the previous session.

However, there are fears that the stronger U.S. data means the Federal Reserve will scale back its quantitative easing programme, and this could derail a hesitant recovery.

The International Monetary Fund cut its growth forecast for China this year to 7.75 percent from 8 percent, citing a weak world economy and exports, while the OECD cut its forecast to 7.8 percent from 8.5 percent.

Front-month Brent futures slipped 41 cents to $103.82 per barrel by 1115 GMT, after rising more than $2 in the previous session to its highest since May 21.

U.S. crude shed 68 cents to $94.33.

"The market expected a pick up of the global economy this year, but it looks like there will only be a gradual restart to acceleration in the second half, so it seems the tipping point is moving further into the future," said Andy Sommer, analyst at EGL in Dietikon, Switzerland.

Data on Tuesday showed U.S. home prices accelerated in March by the most in nearly seven years as spring buying gave the sector traction, while surging consumer confidence pointed to a resilient recovery.

However fears that this strong data will make it more likely that the stimulus will be withdrawn, combined with weak Chinese manufacturing data for May prevented oil strengthening further.

Brent is down more than 12 percent from this year's high of over $119 in February, while U.S. crude has lost more than 3 percent from its January high above $98.

Acting as a support for prices, the worsening conflict in Syria has kept concerns simmering over supply from the Middle East.

Britain and France said on Tuesday they did not have to wait until Aug. 1 to arm rebels fighting Syrian President Bashar al-Assad, and Russia said it would not scrap plans to deliver an air defence system to the conflict-ridden nation.

U.S. oil prices may also be supported by crude inventory data that is likely to show commercial crude stockpiles fell for a third consecutive week on lower imports and higher refinery activity.

The American Petroleum Institute releases inventory numbers on Wednesday, with figures from the Energy Information Agency due on Thursday.

Technical indicators point to a drop for oil. Brent is expected to retrace to $103.29, while U.S. crude may drop to $94.07 per barrel, said Reuters technical analyst Wang Tao. (Additional reporting by Ramya Venugopal in Chennai, India; editing by James Jukwey)



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