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Oil falls below US$94 on fears of potential recession in US

(SINGAPORE) Oil fell yesterday, on fears a potential recession would hurt US demand amid forecasts of higher crude stocks, but the fall was limited by Nigerian supply disruptions and geopolitical concerns about Iran.

US light crude for February delivery dropped 42 cents to US$93.78 a barrel by 0819 GMT after leaping US$1.51 on Monday, snapping a three-day losing streak. The gains were also aided by a weakening US dollar, which lifted the whole commodities complex. London Brent shed 22 cents at US$92.69 a barrel.

Persistent worries of a recession in the world’s biggest economy have kept prices below their record high of US$100.09 hit on Jan 3.

The Organisation of the Petroleum Exporting Countries (Opec) would raise oil output if needed at meetings on Feb 1 and March 5, Opec secretary-general Abdullah al-Badri told Reuters on Monday.

Former US Federal Reserve chairman Alan Greenspan said the US economy was probably in a recession or about to slide into it. The odds are ‘not overwhelming but they are marginally in that direction’, Mr Greenspan was quoted as saying in an interview with The Wall Street Journal.

US crude stocks could also start rebounding. A Reuters poll of analysts forecast data from the US Energy Information Administration showing a 1.2 million-barrel rise in crude inventories in the week to Jan 11, as imports bounced from a sharp drop.

Distillate stocks were seen building by 1.2 million barrels while gasoline should rise by 2.5 million barrels.

‘Macro concerns have been setting the ceiling (for prices), while crude stockdraws, which have continued from the fourth quarter into early January, have been setting the floor,’ analysts at Societe Generale wrote in a research note. But supply disruptions, geopolitical tensions in the Middle East and the weak US dollar continued to offer support, keeping prices in the US$90-100 a barrel range.

‘People realise that oil is going to be relatively tight despite the recession, despite the slowdown in OECD,’ said Tony Nunan, manager at Mitsubishi Corp’s risk management unit.

Royal Dutch Shell declared force majeure on crude shipments from its Forcados export terminal in Nigeria following sabotage to two pipelines last week.

The 380,000 barrels per day (bpd) Forcados field, which was shut for almost two years by a string of militant attacks in February 2006, had partially resumed pumping in the middle of last year. Militant raids since 2006 have knocked out a fifth of the country’s oil output capacity.

Source: Reuters (Business Times 16 Jan 08)

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