Oil prices plummet

Oil fell sharply on Monday after ratings agency S&P revised lower its US credit outlook to negative and Opec ministers said high crude prices could place a major strain on consumer countries' economies. Although it affirmed the United States' "AAA" credit rating, Standard & Poor's said there was a risk policymakers may not reach agreement on how to address the country's long-term fiscal pressures.
"The US debt situation got a reality check this morning from the move by S&P," said John Kilduff, partner at Again Capital in New York. "Only precious metals will be seen as attractive in the aftermath of the outlook downgrade." Opec ministers voiced their concerns at a meeting in Kuwait, where Nobuo Tanaka, executive director of the International Energy Agency, reiterated his comment that if oil prices remained around current levels, they could trigger a recession similar to the one in 2008.
Oil earlier felt pressure after Saudi Arabia on Sunday confirmed it had cut output by more than 800,000 barrels per day in March because of weak demand for its crude. Saudi Oil Minister Ali al-Naimi said a global economic recovery remained "patchy", while his Kuwaiti counterpart added that high oil prices threaten to become an economic burden for many big consuming countries.
Brent crude for June fell $1.84 to settle at $121.61 a barrel, having slipped to a session low of $121. US crude for May fell $2.54 to settle at $107.12, after slipping as low as $106.54. The US May crude contract expires on Tuesday. US equities tumbled as the S&P action added to concerns about the world's top economy. Equities and oil also felt pressure from another Chinese bank reserve hike over the weekend, the latest move to control inflation that could curb demand growth.
Most commodities fell, hit by S&P and concerns over Chinese demand. One exception was gold - seen as a store of value - which shot to a record near $1,500 an ounce. S&P said there is a 1-in-3 chance it could cut its long-term credit rating on the United States within two years.
"This new warning, this time from S&P, highlights the need for the US to take better control of its fiscal destiny if it is to avoid higher borrowing costs and maintain its central role at the core of the global economy," Mohamed El-Erian, chief executive at Pimco, which oversees $1.2 trillion in assets, told Reuters. Oil investors already had been worried about China's economic growth after another hike to Chinese banks' required reserves on Sunday. The action was aimed at fighting excessive liquidity and high inflation.
Crude fell early last week after Goldman Sachs and other key forecasters warned high oil prices were eroding demand. The euro posted its biggest one-day decline since November against the dollar as concerns increased that Greece will be forced to restructure its debt and amid growing anti-aid sentiment in Europe.