Oil prices fell $1 to below $59 a barrel today, extending last week's losses to languish at a seven-week low, as lingering concerns about the pace of a global economic recovery encouraged a further sell-off.
Oil prices dropped 11 per cent last week in their biggest weekly decline since late January amid mounting worries that a economic rebound may not be coming soon to help spur flagging fuel demand.
Crude oil for August delivery was down 79 cents at $59.10 by 8.06am, after having earlier fallen by $1 to $58.89. London Brent crude fell 65 cents to $59.86.
“Economic concerns are continuing to weigh on oil prices. The rally we saw last month was clearly overdone,” said Daniel Liu, an energy strategist at MF Global Singapore Pte.
“We believe oil prices will see a further correction to fall to around $55, before it bounces up when confidence on the global economy returns to the market.”
Oil prices shot up 40 per cent last quarter and touched an eight-month high of above $73 a barrel, as investors shrugged off weak fundamentals and banked on hopes of a swift global economic recovery.
But a recent slew of bearish data around the globe, which suggested that some of the world's largest economies were still not out of the woods, has prompted a sell-off frenzy.
Oil fell today despite data showing Japanese consumer confidence improved in June and a measure of companies' capacity utilisation rose for May, indicating the world's third-largest energy consumer may be past the worst of its deepest recession since World War two.
Analysts said oil prices would continue to track equities markets in the short term. And with Wall Street's rally stalled, this week could be crunch time as big banks' earnings, including Citigroup's, roll in and investors scrutinise reams of economic data for clues on the recovery.
Key economic data from China, including gross domestic production in the second quarter, industrial output and retail sales, due to be released on Thursday, will also be keenly watched by investors.
Analysts at BNP Baribas said oil prices could see more corrections in the short term as external factors which have helped oil's recent rally, including a weak US dollar and rising equities, are set to reverse course.
“Focus will shift back to oil fundamentals which remain weak - oil demand will contract with the world economy, and OPEC has a large inventory hurdle to overcome,” BNP's Harry Tchilinguirian said in a report.
Investors have also been made cautious by US government moves to reign in speculation in energy and metals markets, while the Commodity Futures Trading Commission could have new regulations in place by late October.
Reuters