SINGAPORE: Brent crude fell below $112 a barrel on Wednesday on concerns over the capacity of a fragile global economy to support demand and indications that the world's top oil exporter Saudi Arabia was pumping more oil to bring down prices.
The drop for a third consecutive day comes after global crude benchmarks hit four-month highs last week after the US Federal Reserve unveiled an aggressive bond-buying programme aimed at stimulating growth in the world's biggest oil consumer.
Brent November crude was down 31 cents at $111.72 a barrel at 0123 GMT. At the close on Tuesday, the benchmark had dropped 4 percent since the start of the week, marking the biggest two-day percentage drop since July 23.
US October crude was up 8 cents at $95.37 a barrel, after settling below its 200-day moving average in the previous session of $96.57 a barrel. The contract expires on Thursday. US November crude was up 5 cents at $95.67 a barrel.
"Clearly after the rally from last week, it is easy to understand why Saudi Arabia was keen to send a message to the market that it would be acting to lower oil prices," said Ric Sponner, chief market analyst at CMC Markets in Sydney.
On Tuesday, a senior OPEC Gulf source said Saudi Arabia was pumping around 10 million barrels per day (bpd) and would take action to keep prices around $100.
The source added that OPEC and other producers outside the cartel would be moving to pump more oil to keep prices from spiking.
Oil prices have gained around 27 percent since hitting a 2012 low of $88.49 in June as investors have worried about security of supply from the Middle East and North Africa and on expectations that commodity prices would rise due to economic stimulus measures by the United States, Europe and China.
"High oil prices at these levels are unsustainable and will end up weakening demand and slowing economies, and that isn't a good thing in the long run for any oil producer," Spooner said.
Crude and distillate stocks were expected to be up 1.0 million barrels, with gasoline inventories up 1.2 million barrels, a Reuters survey of analysts taken ahead of weekly reports showed.
EYE ON CHINA
The health of the economy in China, the world's second-largest oil consumer, continues to be a primary market focus, with a preliminary reading of China's purchasing managers' index for September set to be released on Thursday, along with similar data from the United States.
"I'm not expecting to see any change in the trend of the past few months, things are likely to get worse before it gets better," Spooner said.
"The anticipation is that the Chinese economy is going to remain weak and it's going to take some time before we start to see a turnaround."
Investors are also continuing to fret over Europe's debt crisis with growing concerns that Spain, which is at the heart of the euro zone debt crisis, is unable to lower its massive public deficit and control its soaring debt.
"The decisions the Spanish government needs to take are hard, and it won't come easy, ideally they would like to avoid that option," Spooner said.
Madrid has already called on its European counterparts for a lifeline of up to $100 billion euros for its banks, but investors are not confident the country is capable of meeting its financial obligations and return to economic growth without international aid.
Comments
Comments are closed for this article.