Oil price slump further on US economy fears

6th May 2011, Comments 0 comments

The oil price dropped for a second day running on Friday, mirroring a fierce sell-off across most commodities, with sentiment hit by weak US data, a stronger dollar and concerns over weak energy demand.

Traders remain on edge over the health of the struggling US economy -- the world's biggest oil-consuming nation -- ahead of eagerly-awaited non-farm payrolls data at 1230 GMT.

In early London deals, Brent North Sea crude for delivery in June slumped by more than five dollars to $105.15 a barrel -- reaching the lowest level since February 21. It later stood at $109.70, down $1.10 from Thursday's close.

New York's main contract, light sweet crude for June, tumbled to a multi-month low at $94.63, before clawing its way back to $98.32, down $1.48 from Thursday.

"Crude oil prices managed to recover from earlier heavy losses as investors remained cautious ahead of the release of the US non-farm payroll figures," said Sucden analyst Myrto Sokou on Friday.

Oil had already plunged in value on Thursday, with New York crude diving at its fastest pace for two years in the wake of disappointing US jobs data and the stronger dollar.

It lost more than eight percent in value as it dropped below $100 a barrel for the first time since March 16.

"Commodities in general suffered a significant setback yesterday, as concerns over economic growth in the United States again weighed on prices," said analyst David Hart at Westhouse Securities.

"Oil prices were particularly weak, with additional declines this morning. A stronger US dollar on the day also contributed to the weakness."

New US jobless claims rose to 474,000 in the week ending April 30, a 10 percent increase from the prior week and an eight-month high, the Labor Department reported on Thursday.

The data heightened fears that Friday's non-farm payrolls could be dire and spell fresh misery for the oil market.

Crude futures have also fallen heavily in response to downbeat Chinese economic data, and fears over the eurozone debt crisis after the bailout of debt-wracked Portugal.

"Weaker than expected data from China, renewed concerns about eurozone's sovereign debt issues and dissapointing US economic data had already established a negative tone across the markets," added analyst Sokou.

"The disapointing US employment figures (on Thursday) provided the trigger for further weakness in oil market that prompted investors to this heavy sell-off across oil and base metals prices."

Many commodity markets also fell this week as the euro tumbled against the dollar after the European Central Bank cast doubt on the likelihood of a eurozone interest rate rise soon.

The euro fell sharply on Thursday after the ECB held rates and its president Jean-Claude Trichet dropped his keyword "vigilant" in reference to the bank's view of inflation.

That was widely taken as a signal that the ECB was not likely to follow last month's rate increase quickly with another, which sparked an upsurge in the dollar.

A buoyant dollar tends to make dollar-priced commodities more expensive for buyers using weaker currencies. In turn, that tends to dampen demand and eventually pull prices lower.

© 2011 AFP

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