Oil prices dip from new peaks amid US economic jitters

Oil prices eased slightly on Friday after striking record highs as fresh evidence pointing toward a US recession help ease speculative fever, traders said.
Despite the small drop, prices held near all-time highs, supported by the falling dollar, declining US crude reserves and Opec’s decision earlier this week to maintain current output levels.
New York’s main oil contract, light sweet crude for delivery in April, fell 32 cents to close at 105.15 dollars. It hit a new intraday peak of 106.54 dollars.
On Thursday the benchmark contract had closed at an all-time high of 105.47 dollars.
In London, Brent North Sea crude for April delivery settled 23 cents lower at 102.38 dollars after earlier hitting a record high of 103.98 dollars.
Analysts said many investors sold their dollar and equity holdings in favour of commodities as they sought a safer investment amid more bad news on the state of the faltering US economy.
“Mainly today it’s more investment fund money coming out of equity markets and into the commodities markets again,” said Sucden analyst Robert Montefusco.
“We had some terrible figures on the US today, and the dollar has been extremely weak again today. We are probably looking for another big (interest) rate cut from the Federal Reserve again.”
The dollar slid Friday to a new low against the euro — at 1.5464 dollars — after the US government said that employers slashed payrolls by 63,000 jobs in February, in a sign of more struggles for the world’s biggest economy.
“The debate is over. The 63,000 decline in non-farm payrolls in February is near-conclusive proof that the economy is now in recession,” warned Capital Economics analyst Paul Ashworth.
Eric Wittenauer at AG Edwards agreed. “The number reflects a contracting economy and has proven bearish for crude prices.”
Oil market analysts noted that a US economic slowdown could eventually crimp world energy demand and herald lower prices.
The weak US currency encourages demand for dollar-priced commodities like oil because it makes them cheaper for buyers using other currencies.
This week, crude prices have smashed records as trade was also driven by a sharp and unexpected plunge in US crude reserves.
The US Department of Energy announced Wednesday that American crude reserves tumbled by 3.1 million barrels in the week ending February 27. That snapped a seven-week run of gains and confounded market expectations for a gain of 2.4 million barrels.
In addition, the market faced pressure after the Opec oil exporters’ cartel decided on Wednesday to hold output unchanged.
The Organization of the Petroleum Exporting Countries, which produces 40 percent of the world’s oil, decided at a policy meeting in Vienna, Austria, to maintain its daily crude production target of 29.67 million barrels.
Opec blamed the high cost of crude on speculative buying as investors sought a haven amid a weakening dollar and rising inflation.

Copyright AFP (Agence France-Presse), 2008