Oil futures: Crude up but sentiment weak on economic concerns

Crude oil futures rose in Asia Monday, but
sentiment remained weak due to ongoing doubts about the strength of the US and
Chinese economies.

On the New York Mercantile Exchange, light,
sweet crude futures for delivery in August traded at $72.62 a barrel at 0604
GMT, up $0.48 in the Globex electronic session. Trading volumes were thin as
the US market will be closed Monday for a public holiday.

August Brent crude on London’s ICE Futures
exchange rose $0.51 to $72.16 a barrel.

Nymex crude’s correction was expected after
settling lower for the past five consecutive sessions in the U.S. Last week’s
8.5% decline by the front-month contract was the worst since early May.

However, many analysts said any respite was
likely to be temporary, as technical charts show Nymex crude is likely to
consolidate with a downward bias to at least a three-week low of $71.62 a
barrel.

Australia and New Zealand Banking Group
Ltd. expects the front-month Nymex contract to trade in a range of $65-$75 a
barrel throughout July, as markets become more sensitive to any tightening in
Chinese monetary policy and European sovereign debt worries.

“We think the balance of crude oil
price risks appears skewed towards the downside, as negative demand shocks from
a sluggish economic recovery outweigh negative supply surprises such as the
inconclusive six-month drilling ban and potential hurricane disruptions”
in the Gulf of Mexico, ANZ said.

Concerns are also now coming to a head that
Iranian crude left in floating storage could be sold too quickly, adding to the
pressure on benchmark oil prices, ANZ added.

David Moore, chief commodity strategist at
Commonwealth Bank of Australia, said the oil price probably now embodies more
conservative assumptions on a US economic recovery after data last week showed
US consumer confidence falling in June and the country’s gauges of
manufacturing activity tending toward the soft side.

Compounding this were US jobs numbers
Friday, where nonfarm payrolls fell by 125,000 in June, partly due to the
winding down of 225,000 temporary census jobs. Private businesses created
83,000 jobs, less than many economists expected.

Barclays Capital became the latest bank to
shave its medium-term oil price forecasts as a result of the slow pace of the
global economic recovery, saying it now expects Nymex crude to average $87 in
the fourth quarter, or $5 below its previous outlook.

As risk aversion grows in the market, so
investors are likely to move their assets away from commodities and into safe
havens such as the U.S. dollar. Monday, the euro was at $1.2557 against the
U.S. dollar, compared with $1.2543 in late New York trade Friday.

But not everyone in the market is convinced
that the crude price decline has much further to go.

In a note Monday, Goldman Sachs said the
economic outlook embedded in Nymex crude oil prices and speculative positions
remain too pessimistic.

Although it has cut its forecast for China’s
2010 gross domestic product to 10.1 per cent from 11.4 per cent, this
represents a reduction of just 0.1 per cent in its world economic growth
forecast.

“The problem with Chinese oil demand
is one of too much demand rather than too little. Despite the recent signs of a
slowdown in (global) economic growth, oil demand in both the United States and
China remains robust, and continues to surprise to the upside relative to our
forecasts,” Goldman said.

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