Oil hits four-month low over demand concerns, rising dollar

16:15, June 16, 2011      

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U.S. crude oil slipped over 4 percent on Wednesday, hitting the lowest settlement in four months, as the U.S. report showed demand was slowing and the escalating Greek debt crisis triggered risk aversion and resulted in a strengthening dollar.

Light, sweet crude oil for July delivery plunged 4.56 dollars, or 4.59 percent, to settle at 94.81 dollars, breaking the important technical support level of 95 dollars and hitting a new low since February 22.

And Brent crude for July delivery dipped 3.06 dollars, or 2.55 percent and closed at 117.10 dollars a barrel. The Brent July contract expired at settlement Wednesday.

To Wednesday's big decline, the falling euro contributed most. Greek debt crisis remained unsolved and started to escalate. Fierce strike in Athens against the austerity plan, no rescue plan reached by EU financial ministers and credit ratings cut, all these made investors suspicious about Greece's debt default, hurting the confidence in the shared currency euro.

The euro tumbled nearly 2 percent against the dollar, the biggest drop since August. The dollar index, as a result, surged about 1.7 percent, making oil much more expensive for investors and triggering a technical sell-off across the crude markets.

Another important reason for the sharp drop lied in the demand concerns amid U.S. lackluster economic data which indicated a softer recovery.

On Wednesday, the Labor Department reported that U.S. CPI in May rose 0.2 percent, and the core inflation rate exclusive food and energy reached 0.3 percent, the record high in more than three years. Rising inflation pressure meant an uncertainty for the struggling economy.

And a separate report from the Federal Reserve Bank of New York showed, the manufacturing in the New York region contracted unexpectedly in June on parts shortage after Japan's earthquake. The Empire State index fell sharply by nearly 20 points to minus 7.79, the lowest level since last November.

These reports added the evidences to that U.S. recovery was losing energy and oil demand tended to fall consistently. And they initially caused the oil's losses.

The losses extended as U.S. Energy Information Administration delivered the weekly crude inventories report showing that U.S. consumption of distillate fuel, a category that includes diesel and heating oil, tumbled 5.2 percent last week to 3.6 million barrels a day, the lowest level since January.

Average demand over the past four weeks fell 3.2 percent compared with the same period last year, and refiners have also cut their production of gasoline and other fuels, painting a pessimistic demand picture.

Besides, worries about Greek potential default and its impact on EU banks and economy raised risk aversion. Investors escaped from risk assets like oil and equities, and rushed into safe heaven of gold and U.S. bonds. Crude prices fell sharply along with stocks. On Wednesday, Wall Street's three major stocks indexes fell over 1 percent, posting the biggest single day loss since beginning of June.

Source:Xinhua
 
 
     
 
 
 
     
 
 
 
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(Editor:刘晓宁)

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