Oil slips on eurozone crisis, China rate hike

6th July 2011, Comments 0 comments

World oil prices slipped Wednesday amid concerns over the impact of the eurozone debt crisis and another Chinese interest rate hike on global demand for energy.

New York's main contract, West Texas Intermediate for delivery in August, dipped 16 cents to $96.73 a barrel.

Brent North Sea crude for August shed 38 cents to $113.23.

"Oil prices (are) drifting lower on the back of a combination of factors," said CMC Markets analyst Michael Hewson.

"Prices had already been under pressure this morning on the back of the Portuguese downgrade by Moody's as well as concern that growth in the eurozone could well be starting to taper off ... and this could well weigh on demand."

Separately, China Wednesday hiked its interest rate by 25 basis points, the third hike this year and the latest effort aimed at curbing rising inflation.

The move comes as the government places priority on fighting rising consumer prices and despite recent fears of an economic slowdown in China, which is the world's biggest energy consuming nation.

"The Chinese action in hiking interest rates ... has raised concerns of a hard landing for the Chinese economy, especially in light of the recent weakness in (manufacturing) data that we have seen in the past week," Hewson said.

"This in turn could weigh on future demand which in turn has raised fears that the Chinese may be leaning too heavily on the brakes by doing this."

Oil had made solid gains on Tuesday, helped by a tentative surge in optimism on the US economy.

However, prices ran out of steam after ratings agency Moody's slashed its credit rating on eurozone struggler Portugal by four notches to Ba2 from Baa1 -- and warned it could need another bailout.

"The (oil price) rally came to an end ... after Moody's lowered the Portuguese credit rating to junk with a negative outlook," SEB Commodity Research analyst Filip Petersson said.

Moody's said the downgrade reflected "the growing risk that Portugal will require a second round of official financing before it can return to the private market (to raise fresh funding)."

The bad news out of the eurozone contrasted with the United States, which on Tuesday said new orders for US manufactured goods rose 0.8 percent month-on-month in May after a 0.9-percent drop in April.

"The economic news coming out of the US has been good. Factory orders were up in May and crude markets have reacted to this," said John Vautrain, an analyst for Purvin and Gertz international energy consultancy in Singapore.

Attention is meanwhile shifting to the European Central Bank's rate-setting meeting on Thursday, when the ECB is expected to raise interest rates by 0.25 percentage points to 1.5 percent in a bid to curb inflation.

The weekly snapshot of US energy inventories will meanwhile be published on Thursday, one day later than normal, because of the Independence Day public holiday on Monday.

Further afield, traders will digest crucial non-farm payrolls data in the United States on Friday.


© 2011 AFP

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