Oil falls on worries over euro zone, China

NEW YORK—Oil fell more than three per cent yesterday, with worry mounting about the petroleum demand outlook as the euro zone debt crisis pushed the single currency down near a two-year low against the dollar and after China signalled it was not planning a large economic stimulus.

Rising borrowing costs for Spain and Italy and the latest poll showing a lead for Greece’s left-leaning, anti-austerity parties ahead of next month’s elections added to concerns about the region’s economy being enveloped in the debt turmoil. As crude futures headed for double-digit percentage losses for May, equities and other commodities, like industrial feedstocks platinum and copper, also felt pressure from the worsening expectations for the eurozone economy.

Hopes that China would act to counter slowing growth were dimmed after influential academics said Beijing should shun aggressive fiscal stimulus, in remarks published in leading state-backed newspapers on Wednesday. Those views joined a chorus of commentary countering market expectations that China might unveil a stimulus package similar to the four trillion yuan (US$630.1 billion) in spending unleashed during the global financial crisis.

“The European debt crisis and concerns about Chinese economic growth together mean that sentiment is on the very bearish side," said Andy Sommer at EGL in Dietikon, Switzerland. Brent July crude fell US$3.28 to US$103.40 a barrel at 11.34 am EDT (1534 GMT), having slipped to US$103.23. Brent was on pace to post a monthly loss of more than 13 per cent.

US July crude slumped US$3.10 at US$87.66, having fallen to US$87.49 as the front-month crude prices headed for a monthly loss of more than 16 per cent. Wednesday’s price slide took US crude below the 61.8 per cent Fibonacci retracement of the October to March rally at US$88.55 a barrel, a key level of support for technical traders.

Pending home sales in the United States fell in April to a four-month low, an unexpected slip, undermining any recent optimism about the housing sector and adding to investor concerns about slowing economies. US stocks on Wall Street fell more than 1 per cent, with European equities also posting sharp losses.

Reuters