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Oil Falls on Economic Worries, Stronger Dollar

Monday, 24 September 2012 04:17 PM

Oil prices fell more than 1 percent on Monday as disappointing German economic data reinforced concerns about slowing global economic growth and strengthened the dollar against the euro.

German business sentiment dropped in September for the fifth straight month, raising fears of recession as companies struggled with what an economist for the Munich-based Ifo institute called the worst economic outlook since mid-2009.

"Slowing economic growth is the major concern for oil markets," said Olivier Jacob, energy consultant at Petromatrix in Zug, Switzerland.

Data indicating sputtering growth and weakening consumer confidence has sapped the support crude futures received from economic stimulus measures taken by central banks in the United States and Japan, and Europe's plans for bolstering its banking system.

Brent dropped 4.5 percent last week, while U.S. crude lost 6.2 percent on increasing concerns about demand for petroleum and indications that Saudi Arabia intends to supply enough oil to lower prices and alleviate any need for the United States and other consumer nations to release oil reserves.

Brent November crude fell $1.65 to $109.77 a barrel by 2:47 p.m. EDT (1847 GMT), having dropped as low as $108.78.

Support is expected to be tested at Brent's six-week low of $107.10 hit last Thursday and below that at the 100-day moving average of $106.38.

U.S. November crude retreated 96 cents to settle at $91.93 a barrel, after sliding as low as $91.06. U.S. crude also fell to its lowest since early August, $90.66, last Thursday on the day the October contract expired. Just below, the 100-day moving average of $90.46 should offer technical support.

Brent's premium to U.S. crude

In the final week of the third quarter, Brent is on pace to post a 12 percent gain for the quarter, following a 20.4 percent second-quarter plunge.

U.S. crude is on track for an 8 percent quarterly gain, after dropping 17.5 percent in the second quarter.

Monday's total crude futures trading volumes were tepid, with Brent dealings outpacing U.S. crude volume, as turnover for both lagged their 30-day averages.

U.S. October heating oil and RBOB gasoline futures settled more than 2 cents, almost 1 percent, lower. The October contracts expire on Friday.




A stronger dollar, which makes U.S. dollar-denominated commodities more expensive for customers using other currencies, also pressured oil prices.

The dollar index rose 0.4 percent as the disappointing German data weighed on the euro and underscored increasing uncertainties in Spain and Greece.

U.S. equities extended last week's decline on the weak German data and the concerns about the euro zone that also sent European stocks lower.

"The dollar is up, the euro down and the German business confidence number adds to growing sense that the economic growth is slowing," said Phil Flynn, analyst at Price Futures Group in Chicago.

Countering concerns about supply interruptions elsewhere, Nigeria's crude oil exports are expected to hit a six-month high in November as almost all its oil fields pump near recent peak levels, provisional loading programs showed.

Nigeria is expected to sell around 2.12 million barrels per day (bpd) of crude oil in November, up from 2.05 million bpd scheduled to load in October and 1.84 million bpd in September.

Escalating tension in the Middle East continued to limit oil's price erosion, after Iran hinted at the possibility of a pre-emptive strike on Israel.

"Iran will not start any war but it could launch a pre-emptive attack if it was sure that the enemies are putting the final touches to attack it," Amir Ali Hajizadeh, a brigadier general in the Islamic Revolutionary Guard Corps, told Iran's state-run radio on Sunday.

Iran does not take seriously Israeli threats of attack but is prepared to defend itself, Iranian President Mahmoud Ahmadinejad said on Monday in New York. He said Israel has "no roots" in the history of the Middle East and "they represent minimal disturbances that come into the picture and are then eliminated."

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Oil prices fell more than 1 percent on Monday as disappointing German economic data reinforced concerns about slowing global economic growth and strengthened the dollar against the euro.
Monday, 24 September 2012 04:17 PM
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