Oil collapses by more than two dollars

25th May 2010, Comments 0 comments

World oil prices tumbled on Tuesday, shedding more than two and a half dollars on the back of the stronger dollar, slumping equities, eurozone concerns and geopolitical fears over Korea, traders said.

New York's main contract, light sweet crude for delivery in July, dived 2.61 dollars to 67.60 dollars a barrel.

London's Brent North Sea crude for July dropped 2.51 dollars to 68.66 dollars per barrel.

"Crude oil prices... retreated below the 68 dollars-per-barrel area," said Sucden analyst Myrto Sokou.

"A strengthening US dollar and weaker global equity markets weighed on the oil prices and hurt investor sentiment (about) the pace of the global economic recovery."

Global stocks plunged Tuesday and the euro fell close to a four-year dollar low as investors fled in the face of concerns about the eurozone and tensions between North Korea and South Korea.

The European single currency sank as low as 1.2178 dollars as the US unit attracted investors hunting for a safe-haven. That was not far from the four-year low of 1.2144 that was struck last week.

A stronger US unit makes dollar-priced crude more expensive for buyers using weaker currencies, denting demand, which leads to lower prices.

Financial markets, rocked by fresh turmoil in the Spanish banking sector, were also hit by the prospect of severe austerity measures in the eurozone that could slam the brakes on the fragile global economic recovery.

"Concerns about the pace and recovery of the global economy remain one of the critical factors behind the pressure" on oil prices, said analysts at the JBC Energy consultancy in Vienna.

"Political tensions in Asia are also affecting markets with news that North Korea's Kim Jong Il ordered troops into combat readiness."

Continental European equities meanwhile plunged by between 3.0-5.0 percent in midday trading, with London striking the lowest level since early September 2009.

"It was certainly not a good start of the week for the energy market for those expecting a recovery to crude oil prices back to the previous range of 70-75 dollars," added Sokou.

"The energy market is likely to receive further pressure from the robust US dollar in the near term and the general negative sentiment in the global financial markets."

The Organisation of Petroleum Exporting Countries is "not yet" concerned by the decline of oil prices below 70 dollars a barrel, Kuwaiti Oil Minister Sheikh Ahmad Abdullah al-Sabah said on Tuesday.

"Not yet," Sheikh Ahmad told reporters when asked if OPEC was worried. "So what?" he added.

The Kuwaiti minister, whose country is OPEC's fifth-largest producer, said that at present the cartel does not need to hold an emergency meeting to discuss prices.

"We only ask for more compliance" with production quotas, said Sheikh Ahmad.

However, he was hopeful that oil prices would stabilise at between 75 and 85 dollars a barrel.


© 2010 AFP

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