Crude futures retreated from early gains Wednesday as investor focus shifts back to Europe’s fragile economic picture and the International Energy Agency warned oil demand could suffer next year. Light, sweet crude for February delivery recently traded 53 cents lower at $100.18 a barrel on the New York Mercantile Exchange, down from as high as $102.06 earlier in the session. Brent crude on the ICE futures exchange traded 85 cents lower at $110.68 a barrel.
Oil prices were knocked lower by renewed worries about Europe after rating agency Egan Jones downgraded Germany’s debt to AA- from AA. While the three major rating agencies still rate Germany AAA, this downgrade built on concerns in the oil market that recession in Europe will sharply reduce global crude demand.
The IEA, which represents major energy-consuming countries, slashed its oil demand forecasts Wednesday, citing “the rising likelihood of a sharp economic slowdown, if not outright recession,” due to Europe’s debt crisis, and possible oil-price spikes due to tensions between Iran and the West. In its monthly oil market report, the IEA lowered its first-quarter 2012 demand forecast by 500,000 barrels a day. The agency warned that while Europe remains the focus of recession fears, any slowdown in the U.S. would eat into demand growth as well.
The downgrade knocked the euro back from earlier gains, though the common currency remained above $1.28. A stronger euro should offer some relief to high fuel prices for buyers using the currency. Since oil is priced in dollars, the euro’s gains make oil cheaper for European purchasers. The currency’s recent declines have the potential to curtail crude demand in the EU, analysts said. Based on the euro, oil prices are already reaching near levels hit during the price spike of 2008.
EasyForexNews Research Team