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Oil below $100 on ECB, China rate cuts

06 July 2012, 08:49

 Singapore - Oil slid in Asia on Friday with Brent North Sea crude diving below $100 as global economic worries were rekindled following interest rate cuts by central banks in Europe and China, analysts said.

New York's main contract, light sweet crude for August delivery shed $1.13 to $86.09 a barrel in the afternoon and Brent North Sea crude for delivery in August slid $1.22 to $99.48.

An expected slashing of interest rates by the European Central Bank (ECB) on Thursday coupled with a surprise rate cut by the People's Bank of China raised fresh questions about the state of the world economy, analysts said.

"The latest round of news of central banks in Europe and China cutting rates actually raised concerns about the European and Chinese economies," said Victor Shum, senior principal of Purvin and Gertz energy consultants in Singapore.

"Concerns about the economy mean concerns about oil demand," he told AFP.

China - the world's largest energy consumer - on Thursday surprised traders by trimming its benchmark one-year lending rate by 0.31 percentage points and the deposit rate by 0.25 percentage points.

"The market interpreted that news as trouble ahead in the Chinese economy," Shum said.

The ECB's slashing of its key rate to a record low 0.75% on Thursday also sent markets south by way of a weakening euro, he added.

"The announcement by the ECB to cut its benchmark interest rate also failed to inspire investors... (and) caused the euro to weaken and that made the dollar stronger and caused a selling of crude futures," Shum said.

The euro plunged more than one percent against the dollar in late New York trade on Thursday following the announcement of the ECB's rate cut. It was trading at $1.2383 against the greenback in early Asian trade from $1.2391 in late New York trade Thursday.

A weaker euro would make dollar-priced crude more expensive for traders using the European currency.

Cautious investors were also awaiting the June US labour report for signs about the state of the world's largest oil consumer, Phillip Futures said in a report.

"All eyes are on the US non-farm payrolls data due later today... Having the major central banks pulling the policy trigger, pressure will be on the Federal Reserve to do the same," the report stated.


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