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Fri 8 Jun 2012 10:53 AM

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Oil price falls below $99 on US economy concerns

Brent crude price slips after Fed chief Bernanke offers little encouragement to investors

Oil price falls below $99 on US economy concerns
oil, energy, GCC oil, GCC energy, Middle East energy, Middle East oil

Brent crude prices fell below $99 on Friday, pressured by uncertainty about the fragile economic recovery in top oil consumer the United States after its central bank chief offered few clues about more stimulus measures.

Federal Reserve Chairman Ben Bernanke's testimony to Congress offered little encouragement to investors who were hoping the Fed would launch a third round of bond buys, or quantitative easing. Broader financial markets, from Asian shares to base metals fell, reflecting the disappointment.

Brent crude for July traded $1.11 lower at $98.82 a barrel by 8am UAE time, after sliding as low as $98.26. US crude prices fell $1.50 to $83.32 a barrel and touched a low of $82.59. Both contracts are down for a second day.

"Comments by Bernanke poured cold water on market expectations that central banks would offer more to revive their economies," said Victor Shum, senior partner at oil consultancy Purvin & Gertz. "The focus of the market has shifted since worries about Greece and Europe have returned."

Both the benchmarks are poised to remain mostly unchanged for the week. The contracts have slipped for the past five straight weeks.

Bernanke said the Fed was closely monitoring "significant risks" to the US recovery from Europe's debt crisis but struck a decidedly different tone from the central bank's No. 2 official, who argued in favor of monetary support on Wednesday.

The comments offset support from a surprise interest rate cut by China, the first since the global financial crisis. Crude shot higher after the cut was announced, but gains were reversed as the announcement underlined heightened concern among policymakers worldwide that the euro area's deepening debt problems are threatening economic growth.

"The news from China should have been bullish," Shum said. "But the market may be interpreting it as Chinese policymakers are pre-empting poor economic data for May."

A series of data from the world's second-biggest oil consumer China due over the weekend, would be a key factor influencing prices next week. That may keep investors away from the market today, analysts said.

"The outlook for both heading into the weekend is probably mildly bearish," ANZ analysts said in a report. "Few market participants will want to enter the weekend carrying large positions ahead of the May Chinese data dump on Saturday after the central bank's move."

Troubles in the euro zone have recently overshadowed tensions between the West and Iran, OPEC's second largest oil producer, which helped push Brent prices to a record high $128 a barrel in March.

The United States is expected to announce a new list of countries that will receive exemptions to financial sanctions on oil trade with Iran as soon as early next week, a government official said on Thursday.

Crude prices, however, may see support from the first drop in US crude stocks in 11 weeks. Domestic crude inventories fell 111,000 barrels to 384.63 million barrels in the week to June 1, the US Energy Information Administration said on Thursday.

Brent has resumed a downtrend towards its June 4 low of $95.63, while US oil is expected to retest $81.21 per barrel as a rebound from that June 4 low is over, according to Reuters technical analyst Wang Tao.

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