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Oil slides on profit-taking

Apr 06 2011 09:39

Singapore - World oil prices fell from two-and-a-half year highs in Asia on Wednesday as traders reaped gains from the rally, analysts said.

But prices remain supported as investors await an expected interest rate hike from the European Central Bank (ECB), a move regarded as likely to boost the euro and make dollar-priced oil cheaper.

New York's main contract, light sweet crude for May, fell 19 cents to $108.15 per barrel in the afternoon.

Brent North Sea crude for May delivery retreated 41c to $121.81 after touching $122.89 in intraday trade on Tuesday - its highest level since August 2008 - before closing at $122.22.

"I think it's just a very technical selloff after Brent hit $122 which is the highest level since August 2008," said Serene Lim, oil and gas analyst for ANZ bank in Singapore.

She added that crude oil traders were looking to the ECB meeting on Thursday, where a hike in the central bank's interest rates was widely expected to be announced.

"The tone of the ECB on further rate hikes may be supportive of the euro and that will be supportive of oil prices," Lim said.

A stronger European currency would make US dollar-priced crude more attractive, perking up demand and leading to higher prices.

However, there are also other factors affecting oil trading, including concerns over unrest in the Middle East and North Africa which could disrupt oil supplies coming from the region and boost prices.

Bank of America Merrill Lynch said in a market note that a persistent rise in oil prices could slow down global economic growth.

"Some additional upward pressure on commodities should not upset the economic recovery, as long as it is transitory," it said.

However, "a persistent uplift in Brent crude oil prices above $130 (per barrel) this year could create severe economic damage", it warned.

ecb  |  interest rates  |  commodities  |  markets  |  oil



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