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Oil at 18-month low on weaker demand outlook

Published: June 22, 2012 | 8:47 am
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LONDON – Oil fell to a 18-month low below $89 a barrel on Friday and was heading for its biggest weekly loss in about a year as reports suggesting slowing economic growth around the globe signaled weaker demand, while supply is ample.

A downgrade of the credit ratings of 15 of the world’s biggest banks by ratings agency Moody’s to reflect the risk of losses they face from volatile capital markets activities also weighed on commodities and equities.

“Manufacturing is a key indicator of oil demand, and based on the data coming out of the United States it doesn’t look good, even though prices have been coming off,” said Ben Le Brun, a Sydney-based market analyst at OptionsXpress.

“Prices are a little bit higher this morning, because of some short-covering by bargain price hunters.”

Brent crude was up 18 cents to $89.41 barrel by 0810 GMT, after falling to $88.49, the lowest since December 2010, earlier in the session. U.S. crude was down 14 cents at $78.06, after a 4 percent drop on Thursday.

The price of Brent has fallen more than 8 percent this week, in its biggest weekly drop since the middle of last year. It has dropped 30 percent from its 2012 high reached in March of $128.40.

Reports this week showed U.S. factory output grew at its slowest pace in 11 months in June, business activity across the euro zone shrank for a fifth straight month and Chinese manufacturing contracted for an eighth month running.

The leaders of Germany, France, Italy and Spain will meet in Rome later in the day in an attempt to restore confidence in the euro zone ahead of an EU summit in Brussels next week.

Friday’s meeting will look for ways to achieve fiscal and banking union in the euro zone and, more urgently, it may also be the occasion for Spain to formally request assistance of up to 100 billion euros for its struggling banks.

As the economic outlook darkens, oil supply is ample. The Organization of the Petroleum Exporting Countries is pumping about 1.6 million barrels per day (bpd) more than the demand for its oil and its own supply target, according to OPEC figures.

reuters

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