Oil prices retreat on US demand concerns, profit taking

Oil prices retreat on US demand concerns, profit taking

New York: World oil prices fell Monday (5 Nov) amid heightened concerns about US economic weakness that could curb demand and as investors took profits from a run of recent record peaks.

New York’s main futures contract, light sweet crude for delivery in December, sank $1.95 to $95.93 a barrel. It hit a record high of $96.24 last Thursday.

Since 11 October, when oil prices started to soar, crude has gained about 12 dollars in New York as well as London. Some analysts predict they will breach the 100-dollar level by the end of the year.

Crude futures remain underpinned by stretched global energy stockpiles, lingering geopolitical tensions and the weak US dollar, which makes dollar-priced commodities cheaper for buyers using stronger currencies.

“Crude prices were lower on profit taking (on Monday) amid continuing subprime-related negative headlines," said Sucden analyst Michael Davies.

Financial markets were spooked Monday by the resignation of Citigroup boss Charles Prince and the leading US bank’s announcement it expected to write off up to $11 billion in investments related to the troubled US subprime mortgage sector, where loans were given to homebuyers with weak credit histories.

“The news was yet another headline ... to persuade the market that we could see slower (oil) demand growth from the US in the days ahead," Davies added.

“Most commentators though are generally saying that while they envisage lower demand growth in the US, demand growth from China, India and Asia excluding Japan will keep markets tight."

MF Global’s Michael Fitzpatrick said the price retreat was a technical correction.

“As the market closes in on the 100-dollars-a-barrel mark, there is little argument that an overbought condition exists, so a two-dollar to four-dollar correction is certainly warranted," Fitzpatrick said.

“The mindset of participants is such that any selling breaks have so far been shallow and short-lived," he added.

On the geopolitical front, tensions calmed slightly between Turkey and key crude producer Iraq.

Last week, oil prices had smashed records after news of tumbling crude reserves in the US, the world’s biggest energy consumer.

Traders are on edge about US energy inventories heading into the northern hemisphere winter, when demand for heating fuel peaks.