Crude drops to two-month low on weaker oil-demand outlook
NEW YORK -- Crude oil prices settled at a two-month low Monday after dipping below $90/bbl for the first time this year on a weaker oil-demand outlook.
Oil prices have fallen almost 9% since mid-February on worries about weaker demand from the U.S. and China, the world's two largest oil consumers. The Chinese government reported over the weekend that the country's services sector in February grew at its slowest pace in five months. The release came after data Friday showed Chinese manufacturing activity shrank in February from the previous month to barely above contraction.
Also looming over the U.S. economy is government spending cuts. The White House and Congress appear to be no closer to a compromise on avoiding full implementation of the $85 billion in automatic spending cuts, which began to kick in Friday and are expected to hurt U.S. economic growth this year.
"Global economic growth isn't shaping up to what people were expecting at the beginning of the year, so the market's given back nearly all of its gains for the year," said Gene McGillian, a broker and analyst at Tradition Energy.
Light, sweet crude for April delivery settled 56 cents, or 0.6%, lower at $90.12/bbl on the New York Mercantile Exchange, the lowest settlement for oil since Dec. 24. Oil prices traded as low as $89.33 /bbl earlier in the session.
Brent crude on the ICE futures exchange last traded 72 cents lower at $109.69/bbl.
The prospect of weaker oil demand comes at a time when U.S. crude supplies are at multiyear highs. The U.S. Energy Information Administration reported last week that crude-oil output surged to a 17-year high in 2012, while oil demand dropped to a 16-year low.
The strong U.S. dollar also has been weighing on oil prices. Dollar-denominated crude futures become less attractive to buyers in other currencies when the U.S. currency appreciates in value. Uncertainty about the future of Italy's economic reforms has pushed up demand for the dollar, which is seen as a safe-haven currency in periods of market turmoil.
Market players say they are paying close attention to jobs data this week for a clearer picture of the health of the U.S. economy, including weekly jobless claims on Thursday and the monthly unemployment report on Friday. Economists polled by Dow Jones Newswires expect the U.S. economy added 160,000 jobs in February, with unemployment a tick lower at 7.8%.
Front-month April reformulated gasoline blendstock, or RBOB, settled 3.03 cents, or 1%, lower to $3.0983/gal. April heating oil settled 1.1 cents, or 0.4%, lower at $2.9191/gal.
Dow Jones Newswires