Singapore: Brent and US crude futures extended losses on Tuesday after ratings agency S&P revised its US credit outlook to negative, adding to bearish sentiment amid concerns that high oil prices could hamper demand and blunt economic growth.
Opec ministers warned on Monday that costly oil could strain consumers’ economies, a day after top oil exporter Saudi Arabia said it reduced output in March because of lack of demand. Consumers have already warned that rising energy costs would hurt consumption.
ICE Brent crude for June fell 15 cents to $121.46 a barrel by 12:48pm, while May US crude slipped 25 cents to $106.87 a barrel.
S&P on Monday maintained the US’s top AAA credit rating, but said there was a risk US policymakers may not reach agreement on a plan to slash the huge federal budget deficit.
“S&P is just one factor. The market’s focus is on OPEC saying that this is too much crude oil,” said Jonathan Barratt, managing director of Commodity Broking Services in Melbourne.
Concerns about how China’s attempts to slow economic growth could impact crude demand, as well as high crude inventories in top consumer the United States, were also putting pressure on crude, Barratt said.
“You have to start readjusting the value of the commodity,” he said. “All the pressure points that we had before are not there.”
On Sunday, Saudi Oil Minister Ali al-Naimi said the kingdom had cut output by more than 800,000 barrels per day (bpd) in March because of weak demand.
Nobuo Tanaka, executive director of the International Energy Agency, on Monday said that if oil prices remained around current levels, they could trigger a recession similar to that which began in 2008, when oil prices hit a record of nearly $150 a barrel before collapsing to less than $40.
“Already we are seeing some indication of the slowdown in demand, and it’s alarming,” Tanaka told Reuters.
The potential for unrest to disrupt more output in the Middle East and North Africa supported prices. Libya’s output has been cut as the country fights a civil war.
“The tension does not seem to be getting any better,” said John Vautrain of consulting firm Purvin & Gertz. “And we’ve now got some growing tension between Iran and Saudi Arabia. Brent still could go up in the next week or two.”
Relations between the two major Gulf powers and Opec’s top two producers have been strained by anti-government demonstrations in Bahrain which neighbour Saudi Arabia helped put down by sending in troops to bolster Bahraini forces.
A Saudi minister urged Iran on Monday to protect Saudi diplomats in the Islamic republic and threatened unspecified measures if it failed to do so, after Iranian students demonstrated outside the Saudi embassy in Tehran over the Saudi role in Bahrain.
In Libya, NATO bombing has damaged Gaddafi’s armour but was not enough to break the stalemate, and the alliance may have no choice but to use naval gunfire or helicopters, analysts said -- the latter vulnerable to ground fire by Gaddafi’s troops.