Forexpros – Crude oil futures came under heavy selling pressure on Monday, hitting the lowest level in two weeks as ongoing concerns over the sovereign debt crisis in the euro zone and global growth worries continued to weigh on investor confidence.
On the New York Mercantile Exchange, light sweet crude futures for delivery in June traded at USD101.98 a barrel during U.S. morning trade, tumbling 1.8%.
It earlier fell by as much as 2% to trade at USD101.97 a barrel, the lowest since April 11.
Earlier Monday, data showed that the euro zone’s manufacturing output slumped to its lowest level since June 2009 this month, while its services sector fell to a five month low.
The decline was driven by poor performances in Germany and France, with manufacturing activity in Germany slowing to the lowest level in almost three years.
The weak data fuelled fears economic growth in the region will be hit by planned government austerity measures.
The 17 countries using the euro accounted for about 12% of world demand last year. Manufacturing numbers are used as indicators for fuel demand growth.
Sentiment also weakened amid fresh concerns over political uncertainty in the euro zone, as investors mulled the implications of the collapse of the Dutch government following failed budget negotiations and outcome of the first round of the French presidential election.
Adding to the gloomy market environment, the Bank of Spain said earlier that the country’s economy shrank by 0.4% in the first three months of 2012. That follows a 0.3% contraction in the fourth quarter of 2011, and zero growth in the third quarter of last year.
There have been renewed concerns of further debt contagion in the euro zone in recent weeks amid fears Spain will be the next in the euro zone to require a bailout.
The news prompted investors to shun riskier assets, such as stocks and industrial commodities, and flock to traditional safe haven assets like the U.S. dollar.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.47% to trade at 79.65.
Oil prices were mildly lower during the Asian trading session following a report showing that Chinese manufacturing activity remained in contraction territory for the sixth consecutive month in April, fuelling concerns over a slowdown in the world’s second largest economy.
A deeper slowdown in China, the world’s second biggest economy, would impair a global expansion that is already faltering because of the implementation of harsh austerity measures in Europe.
China is the world’s second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Market analysts noted that oil prices may be poised for a downward correction.
Wall Street investment bank Morgan Stanley said in a report earlier that, “Supply outages and geopolitical concerns have supported crude, but barring a supply shock, upside is limited from here.”
A potential loss of Iranian oil supplies has helped underpin strong gains in oil prices during late last year and the first quarter of this year, but revived talks between Iran and major powers over Tehran’s nuclear ambitions, along with rising Saudi Arabian and Libyan output and signs of slower U.S. economic and employment growth, helped pull oil prices back from first-quarter peaks.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for June delivery fell 1.15% to trade at 117.44 a barrel, with the spread between the Brent and crude contracts standing at USD15.46.
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