Oil prices plunge on US supply glut, eurozone fears

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Oil prices tumbled further Friday at the end of a traumatic week during which the market was hit by high US crude stockpiles, stubborn eurozone economic concerns and a strong dollar, traders said.

New York's main contract, light sweet crude for June delivery, shed 1.66 dollars 72.74 dollars a barrel.

Brent North Sea crude for June shed 2.26 cents to 77.85 dollars a barrel in London afternoon deals.

"Crude oil prices came under selling pressure this week, following record oil inventories at Cushing and amid general uncertain and fragile economic conditions in the eurozone," said Sucden analyst Myrto Sokou.

"It seems that global crude oil demand has not rebounded yet to the extent that global oil supply has, and this is possibly going to weigh on crude oil prices in the near term."

The US Department of Energy's Energy Information Administration had revealed on Wednesday that American crude stockpiles had risen by 1.9 million barrels last week, more than double the amount forecast by analysts.

And crude stockpiles at the key Cushing, Oklahoma terminal, jumped to a record 37 million barrels from 36.2 million the prior week.

"Large crude oil inventories seems to be weighing on markets," added MF Global analyst Edward Meir.

The oil market had begun the week on a bright note, soaring on Monday after a one-trillion-dollar EU-IMF eurozone rescue plan eased market concerns over the eurozone financial crisis.

Investors reacted positively to the European Union and International Monetary Fund aid package, worth 750 billion euros, to resolve the debt and budget deficit situation in Europe.

However, prices have since fallen as market enthusiasm waned for the massive bailout plan, while concern grew about higher Chinese inflation that could slow global economic growth.

Oil also took a major hit from the strong US unit, which makes dollar-priced crude more expensive for buyers using weaker currencies and therefore tends to dampen demand and prices.

The euro tumbled to 1.2433 dollars on Friday, striking a level which was last seen on November 21, 2008, as the single currency was plagued by concerns about debt and deficits in the eurozone.

Elsewhere this week, the Paris-based International Energy Agency (IEA) cut its projection for global oil demand this year in the face of public finance pressures in Europe that could drown recovery "in an ocean of public debt."

Worldwide oil demand is projected at 86.4 million barrels a day this year, up 1.9 percent from 2009 but 220,000 barrels a day below the previous IEA estimate.

"The economic recovery is at risk of drowning in an ocean of public debt," the IEA said in its monthly report, adding that "downside risks remain a clear and present danger".

While current attention is riveted on Greece, "other large economies -- and not only in Europe -- face the increasingly pressing challenge of achieving an orderly fiscal consolidation in the next few months without jeopardizing long-term growth."

Oil prices had already collapsed by more than 10 percent in value last week as the market was rocked by contagion fears about the Greek debt crisis, a stronger dollar and sliding global stock markets.

New York crude has slumped from a 19-month peak of 87.15 dollars a barrel reached on May 3 due to worries the crisis in Europe could threaten the global economic recovery.

© 2010 AFP

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