Oil Prices Drag Lower as Fear Continues to Grow

(CEP News) - General market risk aversion and growing concerns about a weakening economy are weigh down oil prices.

Oil prices have been unable to sustain last week’s highs of $45 a barrel and prices remain depressed with WTI crude oil trading around $40 a barrel. Commodity strategists are expecting prices to fall further as investors begin to question the future demand for oil and gasoline.

Fear sentiment received a boost after the U.S. Treasury announced it would provide more funding for AIG. The U.S. government said it would give the insurance company another $30 billion in a statement released Monday.

Aaron Fennell, commodities futures broker at MF Global said the negative news is raising questions about how bad the U.S. economy really is. There is a growing fear that the global recession will be longer and deeper than first expected, he added.

In this environment Fennell said consumers will continue to cut back costs, translating into driving less.

“There are not a lot of bright spots in the global economy,” he said. “We will have to see 30 years of overspending unwind before we resolve this problem.”

Fennell said he is expecting oil prices to trade between $33 and $35.

According to Sacha Tihanyi, currency strategist at Scotia Capital said he is also looking for oil prices to continue to fall. He said prices will be sensitive to further economic pessimism.

WTI Crude oil is down $4.36 to $40.40 while ICE crude oil is trading down $3.96 to $42.39.

Meanwhile, ICE RBOB gasoline futures are down $8.90 to $128.35 and Globex natural gas is down $0.01 to $1.26. Heating oil at the ICE is down $11.70 to $115.05.

In the mining sector, spot gold is trading down $6.90 to $935.45 USD. In Canadian dollars, gold is up $2.14 to C$1204.11. Silver contracts at the CBOT are down $0.11 to $13.02.

Bloomberg’s index for base metals is down 1.94 points to 108.16. Wheat futures at the CBOT are down $15.50 to $506.00.

All data taken at 2:45 p.m. EST.

By Neils Christensen, neilsgc@economicnews.ca

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Posted in Categories: Canada, Commodities, Economy, Eurozone, Releases, USA.

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