BUSINESS

Oil slips for third day: below US$94, on Fed decision, slower growth in China

06/21/2013 04:53 EDT | Updated 08/21/2013 05:12 EDT
NEW YORK, N.Y. - The price of oil slid again Friday on the prospect of a tighter supply of cash and slower growth in China.

Benchmark West Texas Intermediate crude fell $1.71 to US$93.69 a barrel on the New York Mercantile Exchange. The decline extended a sharp plunge that saw U.S. oil fall from nearly US$100 a barrel in morning trading Thursday.

Brent crude, which is used to price oil used by many U.S. refineries to make gasoline, fell $1.24 to US$100.91.

Crude had reached its highest level of the year by Thursday, with the war in Syria threatening wider violence across the Middle East, as well as expectations that the rebounding global economy would increase energy demand.

Economic policies that have increased the supply of cash in the market have also made commodities such as oil attractive.

But Thursday, the U.S. Federal Reserve said it could start tapering its bond purchases this year, which would reduce the amount of cash pushed into the market. That would make it more expensive for traders to invest in oil.

New reports of a lending crunch in China, the world's second-largest economy, and weak manufacturing data there may also ease energy demand.

The sudden drop in the price of oil revealed how susceptible the oil market is to external influences outside of supply and demand. "There has, after all, been no change in the fundamentals since the beginning of the month," Commerzbank in Frankfurt noted in a published report.

Analysts do not expect oil prices to decline much further, however. Geopolitical risks remain, and OPEC has signalled it will lower oil production in the coming months, which would reduce global supplies and prevent a further drop in prices.

"The geopolitical premium must not be forgotten, and may not remain muted for long," said analysts at Credit Agricole CIB in Hong Kong.

In other energy futures trading on the Nymex, wholesale gasoline fell three cents to US$2.75 a U.S. gallon (3.79 litres), heating oil fell three cents to US$2.84 a gallon and natural gas fell 11 cents to US$3.77 per 1,000 cubic feet.

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