Crude falls on demand worries over US credit downgrade

08 August 2011 10:09  [Source: ICIS news]

SINGAPORE (ICIS)--Crude prices slumped on Monday with prices falling more than $3/bbl at one stage as worries grew over the global economy and oil demand after the downgrade of the US credit rating.

At 08:41 GMT, September Brent crude on London’s ICE futures exchange was trading at $107.02/bbl, down by $2.35/bbl from the previous close. Earlier, the North Sea benchmark fell to a session low of $105.79/bbl, down by $3.58/bbl.

September NYMEX light sweet crude futures (WTI) were at $84.46/bbl, down by $2.42/bbl from the previous close. Earlier, the contract price fell to an intra-day low of $83.18/bbl, down by $3.70/bbl.

Brent futures prices are presently trading at levels last seen in late June, while WTI futures have fallen to their lowest levels since February this year.

Fears have been raised that the US and European economies will slow and possibly slip into a double dip recession, threatening the rest of the world.

Equity markets slumped in Asia in response to the worries, with the Nikkei 225 Index in Japan down by 2.18% to 9,097.56.

Crude prices fell after credit rating agency Standard & Poor’s (S&P) stripped the US – the world’s largest oil consumer – of its AAA credit rating, downgrading it to AA plus.

S&P cited concerns over the size of the US budget deficit amid protracted and bitter political debate before the US Congress agreed to raise the country's debt ceiling.

Meanwhile, the G7 group of leading economies and the European Central Bank (ECB) have pledged to support financial stability.

The ECB said it will buy eurozone bonds, which are expected to include bonds from Spain and Italy. Borrowing costs for those two countries have escalated recently because of worries over the health of their economies amid high debt levels.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: James Dennis
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