Oil prices dive on stronger dollar, China rate rise rumours

12th November 2010, Comments 0 comments

World oil prices slumped on profit-taking on Friday when traders also took their cue from the stronger dollar and speculation over a Chinese interest rate rise which could curb consumption.

New York's main contract, light sweet crude for December, fell 1.88 dollars to 85.93 dollars a barrel, after striking a two-year peak the previous day.

Elsewhere on Friday, Brent North Sea crude for December delivery dropped 1.57 dollars to 87.24 dollars a barrel in London trade.

"The price of (New York crude) has shed more than two percent ... and dropped below the 86-dollar mark after reaching a two-year high yesterday," Commerzbank analyst Carsten Fritsch said on Friday.

"This price slump can be explained by a general weakness of commodity prices, triggered by the stronger US dollar, and rumours of an imminent interest rate hike in China."

Traders also cashed in recent gains, after prices had forged a two-year pinnacle on Thursday on the back of upbeat Chinese economic data, and rising demand expectations amid tight supplies.

World stock markets meanwhile dropped on Friday and the euro slid against the dollar, as investors fretted over indebted eurozone nations, despite EU heavweights rushing to downplay those concerns at the G20 meeting in Seoul.

A stronger greenback makes it more expensive for investors holding other currencies to buy dollar-denominated commodities like crude oil.

In recent weeks, the energy market has been buoyed by a weaker dollar and the prospect of a stronger-than-expected global economic recovery.

Traders also absorbed the latest demand forecasts from the International Energy Agency (IEA) on Friday.

The IEA raised its global oil demand 2010 forecast to an average of 87.3 million barrels per day, partly due to a stronger-than-expected rebound in the third quarter, but forecast a modest slowdown in 2011.

"Forecast global oil demand growth for 2010 is revised up by 0.2 million barrels per day to 2.3 mbpd on higher-than-expected 3Q10 data in the OECD and slightly stronger readings in the non-OECD," the IEA said Friday in a report.

"Assuming no recurrence of the weather-induced third-quarter surge, 2011 growth is set to slow to 1.2 mb/d year-on-year, with demand averaging 88.5 mb/d versus 87.3 mb/d in 2010.

The Paris-based IEA is the energy monitoring and strategy arm for the world's leading industrialised nations that comprise the Organisation for Economic Cooperation and Development (OECD).


© 2010 AFP

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