Singapore: Brent slipped below $104 on Monday, extending the previous week’s losses, as the US dollar gained ahead of a vote by Greece to clear unpopular fiscal austerity measures.
The market is positioning itself ahead of economic data from the United States that is expected to show slowing growth. Investors are also concerned about China’s economy slowing down more sharply than expected after Premier Wen Jiabao signalled for the first time the country would struggle to meet its 4 percent inflation target this year.
ICE Brent crude for August dropped $1.51 to $103.61 a barrel by 10:45am, after posting two straight weeks of losses. US crude fell $1.03 to $90.13 a barrel.
“The market is trying to pre-empt Greece and worries in the West,” Jonathan Barratt, managing director of Commodity Broking Services in Sydney.
China, the world’s second-largest oil consumer, recently released a string of disappointing readings on factory activity and exports. Premier Wen’s comments on Monday underlined expectations that interest rates will rise further even as economic growth slows down.
Athens will vote on Wednesday the framework austerity package on tax increases and spending cuts, and then on its implementation on Thursday. It is critical for the country to pass the package to secure funding from international lenders to avert a sovereign default.
The US dollar index, which measures the greenback’s value against a basket of major currencies, was trading above a downward trendline that began a year ago. It was up 0.30% by 10:46am, to 75.89 , having risen 4 percent since May.
IEA, OPEC SUPPLY
Brent crude prices fell 2% on Friday, dropping 7% for the week. The contract’s premium to US crude was at $13.49, down from a record of over $23 hit on 15 June, after the International Energy Agency (IEA) surprised the market with a decision to release 6 million barrels of oil from strategic reserves for the third time in history to replace Libyan supply.
The IEA’s decision to release 2 million barrels per day over 30 days is more than the daily loss of Libya’s 1.2 million bpd exports, and may help ease concerns that the Organization of the Petroleum Exporting Countries (Opec) will struggle to meet demand as consumption from emerging nations surges.
“It also releases pressure on Opec,” Barratt said. “It’s more of a genuine consensus to lower import prices to avoid economic slowdown.”
Gulf oil exporters are unlikely to cut production in response to the International Energy Agency (IEA) releasing emergency stocks because demand for their crude is strong, two Gulf Opec delegates said on Sunday. The group failed to agree on raising output on 8 June.
Still, the impact of additional supply on oil markets is likely to be limited unless Libyan leader Moammar Gadhafi steps down, allowing the country to resume production, he said.
“The only way for oil to get lower is Gadhafi,” Barratt said. “The market will trade into support and is expected to pick up, but the context is weak.”
The US Institute for Supply Management is expected to release on Friday data showing a slower rate of growth for factory activity in June after it grew at its slowest pace in May since September 2009.