Oil Prices Drop over US Economy
By Chika Amanze-Nwachuku and Fidelia Okwuonu with agency report, 01.24.2008
Ahead of the February 1 meeting of ministers of Organisation of Petroleum Exporting Countries (OPEC), oil prices fell sharply yesterday, amid intensifying worry over the health of the US economy.
However, traders cut the market's losses after the US Federal Reserve slashed interest rates by 75 basis points, in a surprise move aimed at averting recession. According to agency report, US crude fell 69 cents to $US89.88 by 5.24a.m. AEDT, up from the day's low of $US86.11. London Brent crude gained $US1.12 to $US88.63 a barrel. "Oil markets are responding to the Fed rate cut, with hopes that it will help the economy and keep demand for oil robust," said Phil Flynn of Alaron Trading in Chicago.
World stock markets suffered their deepest losses since September 11, 2001, earlier in the day amid growing signals that the fallout from the US credit and housing crisis could lead to a recession."There's a lot of fear out there. That could make some market participants go into cash until the situation becomes clearer," said Mike Wittner of Societe Generale.The sell-off has taken oil prices 10 per cent below the all-time peak above $US100 a barrel hit January 3, when the market was focusing on tight inventory levels and a robust energy demand outlook.
Concerns about political instability in oil-producing countries like Nigeria were also expected to provide support for oil prices.Oil's recent slide has relieved pressure on OPEC to agree on a production increase when it meets in Vienna next week.
But the producer group is not expected to cut output, while the world is smarting from the impact of high oil prices and economic uncertainty."With mounting evidence of a slowdown in US economic expansion at year-end, fears of a downright recession have multiplied," OPEC said in its monthly report.Energy Minister of United Arab Emirate (UAE), Mohammad bin Al Hamili, on Tuesday stated that OPEC would review market conditions at the Vienna meeting, before the group takes a decision on whether there's a need to increase oil supplies to the global market."Nobody knows at this point what OPEC will decide. We have to first meet and then look at the market conditions.
We have to also look at the data," Al Hamili told Gulf News on the sidelines of the ongoing World Future Energy Summit in Abu Dhabi.
