Weak US economic data hammers crude, while gas remains flat and weak
There are fresh concerns about the US economy as crude prices drop quickly
CRUDE prices are dropping quickly. New concerns about the US economy and the end of its financial stimulus programme; worries over the Eurozone's exposure to Greek debt; and signs that Saudi Arabia is coming good on its pledge to pump more oil all dented the market.
On 22 June, the US Federal Reserve revealed disappointing economic data and said the US economy would expand by just 2.7% this year, down from April’s estimate of 3.1%. Chairman Ben Bernanke said the economic recovery of the world’s largest oil consumer was progressing “more slowly” than predicted. Rising unemployment and falling house-sales figures are expected to emerge later this week.
Bernanke added that the Fed would keep interest rates near zero – but that its quantitative-easing programme would end at the close of June. The Fed's financial stimulus programme has sent cash into commodity markets and weakened the dollar; two forces helping to support oil prices in recent months.
In London on 23 June, Brent was threatening to fall beneath $111 a barrel, a drop of more than 2.5% on the day, and $8/b less than last week. New York's light sweet crude oil contract was also weak, falling to around $93.50/b on 23 June. WTI’s price discount to the North Sea Brent blend remains near historical highs.
New strength in the dollar, a reaction to worries about Greece's bailout and its impact on the euro, also hit oil prices. So did comments from the International Energy Agency saying Saudi Arabia's oil production was on the rise. The kingdom said after an Opec meeting earlier this month that it would lift output to meet rising demand, despite a lack of consensus over a group-wide production increase. Saudi output could reach 10 million b/d, its highest rate since 2008.
Natgas still weak
US natural gas prices remain stable, but weak, trading at $4.30/million British thermal units. Analysts said mild weather in the northern US caused domestic demand to fall sharply last week. Nationwide, electricity demand also dropped by almost 5%.