The selling intensified after China said on Today, the country’s inflation had surged to 6.5 per cent, potentially preventing the central bank from cutting interest rates.
In early trade in London, ICE September Brent, the global benchmark, fell by more $5 to a session low of $98.74 a barrel, its lowest level since early February. It later recovered above the $100 a barrel level amid hopes that the US central bank would launch another round of monetary easing.
Brent oil prices have fallen more than $10 a barrel in just two days. The correction looked set to accelerate as investors who follow chart patterns sell after Brent prices fell through the key 200-day moving average.
The sharp correction is bringing back the memory of the 2008 global financial crisis, when prices dropped from a record high of nearly $150 to a low of less than $40 in six months after oil demand collapsed. But analysts say that the supply and demand fundamentals are much tighter this time than three years ago, in part due to the civil war in Libya.
The drop in oil prices comes against the backdrop of sharply falling raw materials prices. The benchmark Reuters-Jefferies CRB index, a basket of commodities, hit an eight-month low on Monday after falling by 2.8 per cent to 317 points. The index has fallen 14.3 per cent since a peak in April.
But Jeff Currie, head of commodities research at Goldman Sachs in London, was more positive, telling clients in a note that, although risk to the bank’s “constructive commodity views” had risen, he maintained an “overweight” recommendation on commodities relative to other asset classes.
Some analysts believe that the sell-off in oil markets could peter out soon. Whiles Harry Tchilinguirian, head of commodity market strategy at BNP Paribas said,the oil market has been affected by the “risk-on, risk-off” trend in the markets, the overall fundamentals of supply and demand have not changed.
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