London: Oil fell more than $1 on Thursday on concerns of high prices sparking demand destruction and a stronger dollar, outweighing the impact of a drop in US gasoline stocks and continuing conflict in Libya.
On the day commodities giant Glencore unveiled plans for what could be London’s biggest ever IPO, US crude fell 52 cents to $106.59 a barrel by 05:25 pm after earlier dropping more $1 to as low as $106.07.
Brent crude for May was down 56 cents to $122.32 after briefly dipping 95 cents to an intra-day low below $122.
“I believe we are in a price zone where we get an impact on demand. Sustaining current prices is going to be difficult,” Petromatrix analyst Olivier Jakob said. “Admittedly we still have some geo-political risks but some small exports are coming back out of Libya.”
Libyan rebels are exporting a “minimum amount” of crude from fields pumping around 100,000 barrels per day, far less than usual production of 1.6 million bpd.
Analysts said supply is unlikely to rise significantly unless a resolution to the conflict is reached.
The debate over whether high prices are crimping oil demand has split market watchers, with some arguing it is premature to suggest signs of destruction are visible and the threshold for price driven demand reaction is higher than in 2008.
This week the International Energy Agency and Organization of the Petroleum Exporting Countries both warned high prices could dent demand but did not change their global demand forecasts.
Prices found some support from US gasoline stocks which plunged by 7 million barrels last week to their lowest level since October as refiners cut processing rates and cleared inventories of winter-grade fuel.
The significantly higher-than-expected fall was bullish for crude in early trade but in a Commerzbank note analysts warned the positive sentiment on US gasoline demand caused by the plunge in inventories might be short-lived.
“This is illustrated by the latest MasterCard SpendingPulse survey, which shows gasoline demand in the US dropping the week ended 8 April by 1.9% y-o-y (4-week average), presumably in line with skyrocketing retail prices,” Commerzbank said.
Dollar surge, Chinese inflation concerns
The dollar surged against the euro, pushing the dollar index higher on market speculation that euro zone countries including Greece and Ireland may be forced to restructure their massive debts.
A strong dollar tends to pressure dollar-denominated commodities including crude because it raises the value of greenbacks paid to producers while making it more expensive for consumers using other currencies.
In China, the world’s second-largest oil consumer after the United States, annual inflation was reported to have accelerated faster than expected in March.
The official first quarter GDP figures and March consumer price data will be released on Friday and closely scrutinized for signs growth is out of control, which could prompt further monetary tightening measures from the government.
“It (fiscal tightening) might be a bad thing for oil in the short-term but in the long-term if it means a soft landing for the Chinese economy it is a very good thing,” said Christopher Bellew, an oil trader at Bache Commodities. “We don’t want the over-heating to continue.”
The market will also be keeping an eye on US weekly unemployment claims, scheduled for release at 06:00 pm.