Oil falls under $100 but OPEC says price still within acceptable range
LONDON : Brent crude slid below $100 a barrel on Monday for the first time in more than a year as Chinese and US data pointed to slower-than-expected growth in the world’s top oil consumers.
Weak economic growth combined with ample supply has pushed oil prices down from a high for the year above $115 hit in June, complicating efforts by central banks to ward off deflation and putting pressure on the budgets of major oil producers.
Brent fell to a low of $99.36 a barrel, down $1.46 and its lowest since May 1, 2013, before recovering slightly to trade around $95.50 by 1335 GMT. The recorded its third weekly drop in four last week.
US crude tumbled $1.40 to $91.89 a barrel, after settling at $93.29 on Friday for its sixth weekly drop in seven after disappointing US non-farm payrolls data cast doubt on the pace of growth in the world’s biggest oil-consuming economy. .
Monday’s price fall followed data showing China’s import growth fell unexpectedly for the second consecutive month in August, posting its worst performance in over a year as domestic demand faltered.
It was the second straight month of weak import growth, raising concerns that tepid domestic demand exacerbated by a cooling housing market is increasingly weighing on the economy.
“Chinese data, with imports showing disappointing results, indicates the domestic economy remains quite weak,” said Victor Shum, partner at oil consultancy Purvin & Gertz.
The European Central Bank last week cut interest rates to a record low as euro zone inflation edges towards zero, while the Bank of Japan is maintaining a massive monetary stimulus as it tries to break free from years of deflation. Lower oil prices add to the downward pressure on inflation from anemic growth.
The price fall also puts pressure on exporters’ budgets.
Russia, the target of Western sanctions for its role in the Ukraine crisis, relies on oil and gas for around half of federal budget revenues, while several OPEC producers can’t balance their books at current prices, economists say.
Although the cost of getting oil out of the ground is low in most countries in the cartel, growing social spending and ambitious infrastructure plans mean many oil producers now earn less from their oil sales than they need to fund their budgets.
OPEC sources said the group sees the fall below $100 as short term. Saudi Arabia and other OPEC members have previously said they prefer oil above $100.
“The fall in prices is a temporary thing. They are still within the acceptable range,” an OPEC delegate from a Gulf country said. “We are now approaching winter so the prices are expected to rise,” said the delegate, who declined to be identified.
Investors kept a close eye on geopolitical concerns in Europe and the Middle East, especially on the impact the tensions could have on European demand. So far fighting in Iraq has had little impact on oil production, and output from Libya has increased over the last three months despite violence there.