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Jun 02, 2012 12:50 PM IST | Source:

US job data push crude to 15 month low

Crude oil plunged to a 15 month low after lower than expected US job data followed weak Chinese and European manufacturing data, raising concerns about global economic growth

Crude oil plunged to a 15 month low after lower than expected US job data followed weak Chinese and European manufacturing data, raising concerns about global economic growth

ICE July Brent fell as low as USD 97.70 a barrel on Friday, the lowest since January 2011 after the May US employment data showed that there were only 69,000 jobs created in May, well below the consensus forecasts of 150,000.

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The global oil benchmark, which fell below USD 100 a barrel for the first time in seven months, later regained ground and was trading at USD 99 in Friday London trading.

The drop below the triple-digit barrier on Friday broke the longest consecutive period of USD 100 a barrel-plus prices on record. Brent crude oil, the global benchmark, stood above the USD 100 level for 240 days in a row, from October to May, compared with just 170 consecutive days in 2008.

The sell-off is due to a combination of weak economic growth, a surging US dollar and almost record supply from Saudi Arabia, the world's largest oil producer. Riyadh said in late March that the kingdom wanted "lower oil prices" and boosted production to 10m barrels a day, the highest in at least three decades. It boosted production further in May in spite of signs of weaker growth.

Earlier on Friday, sentiment was depressed by a survey indicating that China's manufacturing sector weakened sharply in May, with the official purchasing managers' index down to 50.4 in May, its lowest in five months, from 53.3 in April. Similar surveys in Europe also pointed to lower growth.

"The current cocktail of crude stockbuilds, weak economic data from the world's major economies and an ever deepening sovereign debt crisis in Europe will be a strong force to overcome in the short term," said oil consultants JBC Energy.

The drop in Brent below USD 100 a barrel is set to be a hot topic at the forthcoming Opec meeting. The oil cartel is scheduled to meet in Vienna, Austria, on June 14 to discuss the market.

Iran, the second largest crude oil producer within the group, has warned Saudi Arabia that its production policy risks a "serious decrease" in oil prices. Mohammad Ali Khatibi, Iranian Opec governor, told local media earlier this week that high production from "certain Opec countries, in particular Saudi Arabia, will result in an imbalance in the market".

Ali Naimi, Saudi oil minister, has stated the kingdom aims to stabilise oil prices around USD 100 a barrel. But analysts believe that Riyadh will overshoot its target for a while due to global economic weakness.

Oil analysts are now debating whether prices will stabilise around USD 100 a barrel or fall further. Paul Horsnell, head of commodities research at Barclays in London, told clients that "without the onset of a serious economic discontinuity, we believe prices have now pushed towards the bottom of a sustainable range".

The strength of the US dollar against major currencies prompted further selling of oil and other commodities. Raw materials are mostly denominated and traded in dollars and their prices tend to fall if the US currency appreciates. The dollar has surged to a 22-month high of USD 1.2317 per euro.

Amid the rush for haven assets such as the US dollar and treasuries, gold regained its lustre, rising 2.4% to USD 1,600 a troy ounce. Copper for three month delivery on the London Metal Exchange fell 0.7% USD 7,388 a tonne. Nymex July WTI traded at USD 83.69 a barrel, down USD 2.85 on the day.

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