Oil falls as fears for growth intensify
By Javier Blas in London, James Politi in Washington and Gerrit Wiesmann in Frankfurt
Published: August 4 2008 19:58 | Last updated: August 5 2008 08:56
Crude oil prices fell below $120 a barrel for the first time in three months on Monday, as new data underscored the damage high energy costs are inflicting on US consumers.
Real US consumer spending fell by 0.2 per cent in June, as rising inflation offset the impact of $100bn in rebates for US taxpayers.
A large chunk of the economic stimulus payments ended up in savings accounts in both May and June, as consumers pulled back on spending in the face of weak employment conditions, higher gasoline prices and declines in household net worth, said Brian Bethune, US economist at Global Insight.
The US Federal Reserve, which meets on Tuesday, and the European Central Bank and Bank of England, which meet on Thursday, are all expected to hold rates steady as they weigh concerns about inflation and growth.
In early morning London trade, Nymex September West Texas Intermediate sank to a low of $119.91 before recovering slightly to $120.42 a barrel, down 99 cents from the previous sessions close. ICE September Brent fell $1.16 to $119.52 a barrel.
In New York, West Texas Intermediate oil futures on Monday plunged more than $5 to an intraday low of $119.50 a barrel, sending the Reuters-Jefferies CRB index, a global commodities benchmark, to its lowest since early May. In later trade, oil recovered to $121.41 a barrel.
Michael Wittner of Société Générale said prices fell amid concerns that a slowing global economy was damping demand for fuel.
Other factors pushing down oil prices included higher supplies from Opec, which mainly reflected Saudi Arabias decision to boost its oil production to the highest level in more than 25 years.
Some traders also expressed doubts about the strength of Chinese consumption, saying it had been artificially boosted by stockpiling ahead of the Olympics.
However, traders warned against calling the end of the oil rally, since prices have oscillated between $130 and $120 for the past 10 days without a clear trend emerging.
In the US, a key gauge of inflation the core personal consumption expenditure index rose 0.3 per cent in June, more than expected by economists. On an annual basis it rose 2.3 per cent, above the Feds comfort level.
Including food and energy, prices rose 0.8 per cent in June more than the 0.6 per cent increase in spending produced thanks to the stimulus cheques.
In the eurozone, prices for products leaving the factory gate rose by an annual 8 per cent in June, a new high for the nine-year-old currency bloc, raising fears that the ECB could raise rates in the autumn.
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Copyright The Financial Times Limited 2008