Oil falls to nine month low in the US

20 May 2010

Contract likely to fall lower later in May

Crude oil prices fell to a nine month low in the US under $70 a barrel on 21 May on the back of continuing fears over the financial and economic health of the European Union.

The benchmark for the June West Texas Intermediate (WTI) contract was trading at $67.73 a barrel on 21 May, down $6.27 a barrel from a week before. The contract’s value was at its lowest since 17 August 2009, when it closed at $66.72 a barrel.

Analysts expect the contract to fall later in May, as prices are being buoyed by increased trading due to the nearing expiry of the contract. From 22 May onward, traders will only be able to buy and sell the contract for deliveries in July.

In Europe, the June Brent contract had also suffered week-on-week falls, trading at $71.31 a barrel compared to $80.93 a week before. The contract was at its lowest since 16 October 2009 when it closed at $71.75 a barrel.

The Brent contract has traditionally traded at a discount to WTI, but high oil inventory levels at Cushing, the US’ main trading point, have pushed prices down for the large energy consumer.

Crude oil inventories grew in the US as a whole during the week ended 14 May, data released by the country’s Energy Information Administration (EIA) shows. Stocks rose by 200,000 barrels to 362.7 million barrels, although growth was confined to Cushing and inventories of both distillates and gasoline fell, by 1 million barrels to 4.7 million barrels in the case of the former and 300,000 barrels to 17.8 million barrels in the case of the latter.

Much of the recent weakening of prices has been attributed to fears over the finances of EU countries like Greece, Spain, Portugal and Ireland, and the effect they are having on the Eurozone economy and the union’s single currency the Euro.

Although the Euro has strengthened marginally since hitting a record low of $1.22 against the dollar on 19 May, to $1.23 on 21 May, concerns remain over its future. With the US dollar trading at higher levels against other currencies oil, which is traded in dollars, has also lost value.

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