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Oil heads for 3rd week of losses on U.S. growth concerns
Technicals show price in $72.50-$74 range.
August 27, 2010 8:52 by Reuters
Oil snapped a two-day rally on Friday, heading for a third straight week of losses as a forecast downgrade in U.S. economic growth fed disquiet over record oil inventories and weak housing and manufacturing data.
Friday’s negative sentiment eclipsed a positive U.S. jobs report on Thursday, which helped boost front-month U.S. crude by almost 1.2 percent. It also sent the Nikkei down towards a 16-month low.
U.S. crude for delivery in October fell 33 cents to $73.03 a barrel by 0256 GMT, after touching an intraday trough of $70.76 on Wednesday, the lowest price since early June. Prices have slid about $10 from a peak near $83 on Aug. 4.
“The fundamental picture is very negative,” said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.
“If you get suportive data in terms of GDP and stimulus, prices could go to the top of the trading range, but if it comes lower than expected, the environment is so negative that we could see a break of $70.”
On Friday, the U.S. government is expected to revise second-quarter gross domestic product (GDP) growth lower to an annual pace of 1.4 percent from 2.4 percent, a Reuters survey shows.
In a Friday speech to fellow central bankers, U.S. Federal Reserve Chairman Ben Bernanke is likely to discuss the uncertain prospects for the economy, but is not expected to give many clues about whether the central bank will pump more cash into the economy to keep the recovery going.
Reports on Wednesday showed new U.S. home sales slumped to the slowest pace on record in July and orders for costly durable goods were weak, heightening fears the economy was at risk of another downturn.
Weakness in the consumer sector has slowed energy demand growth in the United States, the world’s top oil user. Thus the nation’s total petroleum inventories have soared to their highest levels since weekly records began in 1990.
Bloating U.S. inventories are depressing prices of U.S. benchmark West Texas Intermediate crude relative to North Sea Brent. The premium of front-month Brent futures over front-month WTI jumped to as high as $1.80 on Thursday, the widest since early June, receding to about $1.65 on Friday.
October ICE Brent slid 38 cents to $74.64 on Friday.
Front-month U.S. crude is also trading at steeper discounts to contracts for the following months, a market structure known as contango.
Although new U.S. jobless claims fell more than expected last week, they were too high to signal a shift in a weak labour market that is constraining economic growth.
Japan’s Nikkei average fell 1 percent on Friday, with technology shares and exporters lower after Wall Street slid a day earlier on nervousness about the economic outlook, sending U.S. shares to seven-week lows.
Tropical Storm Earl in the eastern Atlantic Ocean continued to move westward on Thursday, with the U.S. National Hurricane Center still expecting the system to become the season’s third hurricane by Saturday.
Early computer models still show the storm moving west and the northwest, away from key oil and gas producing areas in the Gulf of Mexico. Hurricane Danielle, which strengthened to Category 2, was also expected to stay in the Atlantic.
(By Alejandro Barbajosa, Editing by Clarence Fernandez)