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Oil prices dive on inflation jitters
By Julie Charpentrat
AFP
NEW YORK
Petroleumworld.com 06 14 06World oil prices slumped Tuesday on expectations that global central banks will get tough on inflation by curbing economic growth and hence demand for crude.
Prices were also hit by signs that the first tropical storm of the Atlantic hurricane season, Alberto, will miss US rigs in the Gulf of Mexico, dealers said.
New York's main contract, light sweet crude for delivery in July, slid 1.80 dollars to close at 68.56 dollars a barrel, its lowest level in three weeks.
In London, Brent North Sea crude for July delivery shed 2.01 dollars to 66.92 dollars a barrel.
The drops reflected a freefall in global asset markets with share prices around the world slumping, AG Edwards energy analyst Bill O'Grady said.
"All the markets that have been favored since 2000 -- housing, commodities, emerging markets, high-yield bonds and small-cap stocks -- are now taking on water as the world's central banks make it clear that they are draining liquidity to counteract the potential for higher future inflation," he said.
The world's leading central banks in the United States, Europe and Japan have all hinted at interest rate rises as sky-high energy prices finally start to stoke core inflation.
The latest US economic data Friday did nothing to soothe fears that the Federal Reserve would pursue its relentless campaign against inflation at its next meeting on June 28-29.
US wholesale prices rose by 0.2 percent in May, but core prices excluding food and energy rose by a faster 0.3 percent, the Labor Department said.
With markets braced for the release Wednesday of US consumer prices data, investors have been scurrying for cover after having their hopes raised that the Fed's hike campaign might be drawing to a close.
"The monetary policy backdrop has shifted meaningfully," JP Morgan economist John Normand said.
Wednesday was also to see the release of weekly energy inventory numbers from the US Department of Energy.
Analysts expected the figures to show more increases to US gasoline reserves, which would depress prices.
Another factor in Tuesday's trade was the path of Alberto. More than 20,000 people were ordered to evacuate their homes in Florida as the tropical storm swirled through the Gulf of Mexico.
But the storm was on a course that would largely spare oil facilities in the Gulf, Sucden analyst Sam Tilley said.
"However, we still expect oil prices to remain relatively firm as the prospect of another active hurricane remains fresh in most peoples' minds," he said.
Energy facilities in the region, which accounts for more than a quarter of total US oil output, were devastated last year by hurricanes Katrina and Rita, sending crude prices to then-record levels.
Dealers said that Iran's standoff with the West over its nuclear programme would limit further falls in oil prices.
"There is still going to be some negotiations (between Iran and the West) and until that is out of the way, we are not going to see a significant sell-off," said David Thurtell, a Sydney-based commodities strategist with Commonwealth Bank of Australia.
Iran, the world's fourth-biggest producer of crude oil, said on Monday that its nuclear fuel work was non-negotiable, in yet another sign that the Islamic republic is unwilling to suspend uranium enrichment work.
Washington and its allies fear that Iran is secretly trying to build nuclear weapons. Tehran insists its work is strictly for civilian energy purposes.
burs/jit/ch
AFP 13 2037 GMT 06 06
Copyright ©2006 AFP. All Rights Reserved.
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