Oil prices slump on weak demand fears, high supplies

12th May 2011, Comments 0 comments

World oil prices slumped further on Thursday as the market was hit by a cocktail of weak energy demand and rising supplies, analysts said.

New York's main contract, light sweet crude for June, dived as low as $95.25 a barrel -- a level last seen on February 23. It later stood at $95.52, down $2.69 compared with Wednesday's close.

Brent North Sea crude for delivery in June sank $1.93 to $110.64 a barrel in early afternoon London deals. Despite recent falls, prices remain at high levels.

"Investor sentiment has been hurt by weaker oil demand from China, a large unexpected build in (US) crude oil stocks and the (demand) downgrade from the IEA," said Myrto Sokou, an analyst at Sucden brokers.

"In addition, there are global inflation concerns that could threaten the global economic recovery and oil demand prospects," she added.

The market had already plunged on Wednesday due to signs of faltering energy demand in the United States and China, which are the world's top oil-consuming nations.

On Thursday, the International Energy Agency cut its outlook for global oil demand by 190,000 barrels per day because of high prices and unexpectedly weak growth in rich countries.

"Forecast global oil product demand growth for 2011 is trimmed on persistent high prices and weaker IMF GDP projections for advanced economies," the IEA said, putting total demand in 2011 at 89.2 million barrels per day.

"The IEA's monthly report added some pressure... after the OECD energy advisor lowered its 2011 demand forecast for the first time this year, citing emerging evidence of slowing demand due to elevated prices in North America," said Andrey Kryuchenkov, an analyst at Russian financial group VTB Capital.

Oil futures also faced renewed selling pressure after the US Department of Energy's latest weekly report on energy reserves, which showed another increase in crude stockpiles and an unexpected rise in gasoline reserves.

The rises were a sign of softer demand in the world's largest oil-consuming nation.

There were also concerns over oil demand in China, the biggest energy consumer. China's central bank on Thursday said it would raise the amount of money that lenders must keep in reserve to reduce liquidity as official concerns persist over inflation and rising housing costs.

The People's Bank of China said it would raise its reserve requirement ratio by 0.50 percentage points, effective May 18 -- the fifth such hike this year.

Thursday's drop in oil prices, along with falls in the value of other commodities such as metals, weighed on global share prices.

© 2011 AFP

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