Brent crude sitting above US$ 118 per bbl, sharp drop likely imminent

Despite remaining above US$ 118 per barrel, there are concerns that Brent crude futures are due for their steepest loss in more than three months, putting the markets into a state of anxiety.

Disappointing economic news from the US jobs market showed only a slight decrease in the number of people applying for unemployment benefits for the first time, from 388 000 last week to 386 000 this week. 

Factors such as this are taken as a sign that the US economy is still very much in a tentative stage of recovery, with demand for crude likely to be depressed.

A hint of optimism remains however, as investors await the meeting of US Federal Reserve policy-makers next week, where a possible third round of financial easing will be employed, boosting confidence in the commodities markets.

Another aspect continuing to apply downwards pressure on oil prices is the ongoing insecurity caused by the European sovereign debt crisis. The economies of Spain and Italy continue to hang on the brink of collapse; even though Spain held a successful debt auction, selling off 2.5 billion Euros of debt in 2 and 10 year bonds, the concerns remain. One broker, based in Tokyo, said, “The Spain sovereign debt auction went rather well, but the European economy is still very unstable which is affecting Brent prices.”

A poll of economists taken by Reuters showed that it was likely that Spain and Italy would not need to be bailed out, as in the case of Greece, but they would most likely cause the European recession to continue until the middle of this year at least.

Edited from various sources by David Bizley

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