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OIL FUTURES: Crude Down Amid Demand Worries

Monday, Sep 24, 2012

By Ben Winkley

LONDON--Crude-oil futures fell sharply in London Monday, after weak German data and fresh worries about slowing Chinese growth pushed the market's focus firmly onto the uncertain outlook for demand.

The euro fell after figures from Germany's Ifo Institute showed business confidence in the single currency bloc's largest economy fell for a fifth straight month. As crude oil is priced in dollars, fluctuations that result in a stronger greenback make oil more expensive for holders of other currencies.

At 0927 GMT, the front-month November Brent contract on London's ICE futures exchange was down $1.61, or 1.4%, at $109.81 a barrel.

The front-month November light, sweet crude contract on the New York Mercantile Exchange was trading $1.21, or 1.3% lower, at $91.70 a barrel.

At the same time, the euro was at $1.2914 against $1.2978 in late New York Friday, with renewed concerns over Spain and Greece helping to keep a lid on the currency.

"Where we find the dollar this morning, in a stronger position than last week, is removing further investments off the table," said Saxo Bank's head of commodity strategy Ole Hansen. "The focus is returning to Europe--general consensus is that even though we have QE3, the fundamentals don't stack up in supporting high energy prices at this stage."

Monday's decline in prices extends a run of heavy losses on crude oil markets. Last week, Brent fell by 4.5% and U.S. WTI crude fell 6.2%, the two contracts' largest weekly losses since June.

Fundamentals will be increasingly weighed now that participants are more or less clear on central bankers' action and growth-boosting measures for major consumers like China, the U.S. and the euro zone, said VTB Capital analyst Andrey Kryuchenkov.

Despite these measures there was a weaker tone in Asian trade Monday, not helped by comments over the weekend from a senior advisor to the People's Bank of China who said that there are no signs of a rebound in the local economy.

Chinese growth is waning and some 50% of oil demand growth comes from this one country, said PVM.

"The chances are that if Chinese growth is stalling, it is a similar picture in other developing countries where most of the remainder of oil demand growth comes from," the brokerage noted. "We are reminded every day of developed countries determination to cut back on oil demand."

Adding to pressure on Brent futures are delays to cargoes amid over-running North Sea field maintenance. The resultant supply fears, ahead of the high-demand northern hemisphere winter, can be seen in the widening of the front-month spread, said Steven Shork of the Shork Report, which has jumped from a low of 44 cents a barrel Sept. 14 to around 80 cents Monday.

Looking ahead, this week the focus is likely to fall squarely on Spain and when the beleaguered nation will request financial aid. The Spanish government's 2013 budget will be presented to parliament Friday, while the next meeting of euro-zone finance ministers is scheduled Oct. 8, and the next European Union summit is Oct. 18-19.

The ICE's gasoil contract for October delivery is down 6.75, or 0.7%, at $967.75 a metric ton, while Nymex gasoline for October delivery was 389 points, or 1.3% lower, at $2.9036 a gallon.

Write to Ben winkley at ben.winkley@dowjones.com

(END) Dow Jones Newswires

September 24, 2012 05:54 ET (09:54 GMT)

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