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Business News/ Money / Oil slips as focus returns to economic frailty
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Oil slips as focus returns to economic frailty

Oil slips as focus returns to economic frailty

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London: Oil retreated on Thursday, as investors focused on disappointing economic data, but dollar weakness and increasing violence in the Middle-East helped limit losses.

Crude oil gained sharply on Wednesday as traders initially focused on an unexpected drop in US distillate stocks.

However the figures from the Energy Information Administration showed domestic crude stocks rising, countering expectations of a fall and underlining the gloomy outlook for demand.

“When you look at yesterday’s data, it looks pretty bearish, crude oil stocks are at record high levels, demand appears very weak and other economic data like durable goods was also weak," said Christophe Barret, oil analyst at Credit Agricole Corporate and Investment.

New orders for US manufactured goods posted their largest drop in six months in April after a steep fall in demand for transportation equipment, data showed on Tuesday.

By 03:30 pm Brent crude futures for July were down 60 cents to $114.33 per barrel. US crude dropped 45 cents at $100.87.

Both benchmarks rose around 2% on Wednesday to close at their highest since 10 May.

Yemen bloodshed

Geopolitical factors were seen supportive, with fears of spreading turmoil in the Middle-East rekindled by a brewing civil war in Yemen as dozens were killed in overnight gun battles.

Analysts said the ongoing tensions in the region have added a $10-$20 security premium to oil prices.

The dollar retreated against the euro and edged down against a basket of currencies, making commodities priced in the greenback more attractive to consumers using other currencies.

The euro was boosted by a report that China and other Asian investors are expected to buy a “strong proportion" of Portuguese bailout bonds when the eurozone’s rescue fund starts auctioning them next month.

But the risks surrounding the single currency remain, with Greece fighting to avoid a debt restructuring that could spread to other European economies struggling with gaping fiscal deficits.

According to technical charts, Brent is expected to extend gains to $118.43, subject to a break above a resistance at $116.28, while US oil is expected to rise to $104.60 per barrel, said Reuters market analyst Wang Tao.

Analysts were divided over the longer-term direction of oil prices, as upward revisions of price forecasts by Wall Street banks Goldman Sachs and Morgan Stanley earlier this week deepened the divide between the bulls and the bears to levels unseen since oil prices peaked in 2008.

Investors looking for more evidence on whether the global economic recovery is on track, and how this could affect demand for commodities like oil, will watch US GDP data at 06:00 pm.

The US government is expected to report that the economy grew at a 2.1% annual rate in the first quarter, according to a Reuters survey, rather than the 1.8% pace it estimated last month. Employment data will also be eyed.

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Published: 26 May 2011, 04:32 PM IST
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