Oil drops as China, US economies deteriorate

Oil prices fell to an 18-month low yesterday as the economic outlook darkened from China to the United States.Brent, the European benchmark, hit US$91.30 a barrel yesterday, down more than 28 per cent from a March high of $128. Nymex crude futures in the US dipped by 1.4 per cent to $80.31 a barrel. Oil's slide comes as a slew of new data painted a picture of a deteriorating outlook for some of the world's leading energy users. In the euro zone, preliminary manufacturing and service sector data showed the downturn in the region was worsening as falling new orders and rising unemployment rocked business sentiment this month. Even Germany, the single-currency's biggest economy, showed weakness. Manufacturing activity reached a three-year low as the country's private sector declined for the second month running. "Of particular concern [across the euro zone] is the near-record deterioration in business optimism, combined with marked falls in employment and purchasing by companies," said Chris Williamson, the chief economist for Markit, which compiled the data. "This suggests that firms are preparing for conditions to worsen in the coming months, with the darker outlook often attributed to uncertainty caused by the region's ongoing economic and political crises." Concerns about a slowdown in China were further fuelled by tepid readings from a similar survey. Private-sector activity shrank for an eighth straight month this month as demand for exports slipped. Economists say growth in China is likely to have eased for a sixth quarter in a row in the period from April to this month as the euro-zone debt crisis hampers its expansion. Meanwhile, in the US new data released yesterday showed the number of Americans on unemployment benefit was little changed last week. Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 387,000, the US labour department said. The Federal Reserve on Wednesday opted to extend its bond-buying programme to the end of the year in a bid to shore up the world's largest economy. Yesterday's gloomy data weighed on global stocks, reversing a week of modest gains. MSCI's global equity index slid 0.4 per cent to 309.95 points after the release of the euro zone and Chinese data. Last week, Opec opted to keep its ceiling at 30 million barrels per day (bpd), although it is pumping about 1.8 million bpd in excess, much of that from Saudi Arabia. "Opec has clearly requested Saudi Arabia to remove barrels," said Johannes Benigni, the founder of JBC Energy. "Let's see what they do and when ... I'm not bearish." The fall in prices comes as Abu Dhabi prepares to ship oil from a strategic pipeline to Fujairah's coast, allowing nearly half the emirate's output to bypass the Strait of Hormuz bottleneck.Fears over a potential confrontation between western powers and Iran, which has threatened to block the narrow waterway in retaliation to sanctions, added a risk premium of $15 to $20 a barrel to oil earlier this year, say analysts.from the national.