Tags: oil | prices | us | economy

Oil Prices Sink on Worries About US Economy

Friday, 06 July 2012 10:13 AM EDT

Crude-oil prices fell sharply on Friday after a report showing tepid U.S. jobs growth in June reinforced concerns that a sluggish global economy will curb demand for petroleum.

U.S. crude fell more than 3 percent while the European benchmark, Brent, fell below $100 a barrel.  An oil workers strike in Norway and rising tensions over Iran's disputed nuclear program allowed Brent crude prices to record a 39-cent weekly gain, based on settlement.

Norway's oil industry and labor unions agreed to restart negotiations on Saturday at the request of the government.

Crude futures briefly pared losses on the news that the government chose not to intervene, hoping the parties can resolve the dispute themselves. Some analysts had expected Oslo to act quickly to return striking workers to their jobs after industry's threat of a lockout.

U.S. employers added only 80,000 jobs in June, 10,000 fewer than analysts expected, and the unemployment rate remained at 8.2 percent, fuelling fears Europe's debt crisis was shifting the U.S. economy into a lower gear.

"People were looking for something better, some indicator that may show we're crawling out of this trough," said Nigel Gault, chief U.S. economist at IHS Global Insight. "But everything here says we're still in it."

Brent August crude fell $2.51 to settle at $98.19 a barrel, with the $97.73 low recorded in post-settlement trading.

U.S. August crude slumped $2.77 to settle at $84.45 a barrel, down 0.6 percent for the week and falling as low as $84.02 in post-settlement trading.

Brent's premium to U.S. crude increased to $13.73 a barrel, based on settlement prices, as the Norway oil workers strike and the potential threat to supply from Middle East tensions provide more support to Brent.

Thin volumes characterized trading for both Brent and U.S. crude, with total volumes for both contracts below 30-day averages.

Monetary easing by central banks in China, the eurozone and Britain on Thursday had underscored concerns about a fragile global economy that has muddied the demand outlook for commodities.

"The latest jobs data also underscores the weakness that has emerged in the global economy," said Gene McGillian of Tradition Energy, Stamford, Connecticut.

"With the economies of China and Europe also weakening, this spells lower global demand for energy."

The disappointing jobs report kept intact hopes that the U.S. Federal Reserve will move to bolster a sputtering economy.

Adding to the bearish tone, the head of the International Monetary Fund voiced concern over the deterioration of the global economy, saying the IMF will downgrade some of its forecasts.

Additional pressure on dollar-denominated oil prices came from the weak dollar.

The euro slumped to a two-year low against the dollar as the U.S. jobs report added to concerns that Europe's debt crisis is weighing on U.S. economic growth and stoked strong risk aversion and a flight to safe havens.

The downdraft from the disappointing job additions sent U.S. stocks down more than 1 percent and put the S&P 500 index on track to post a weekly loss.

NORWAY OIL INDUSTRY, UNIONS TO MEET

Norway's oil industry and labor unions agreed to meet on Saturday with a state mediator to make another attempt at reaching a deal to end a strike that has cut oil output by 13 percent and natural gas production by 4 percent and threatens to cut off exports.

Industry upped the ante on Thursday, calling for a lockout from July 10, a move that many analysts thought made likely intervention by Oslo to end the dispute.

That threat to North Sea production comes amid the start of the European Union's embargo on Iranian oil that started on July 1, as part of the West's effort to hem in Tehran's disputed nuclear ambitions.

Iran has seen crude exports fall sharply from year-ago levels as the West tightens sanctions.

 

© 2024 Thomson/Reuters. All rights reserved.


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2012-13-06
Friday, 06 July 2012 10:13 AM
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