Oil prices fell more than US$2 yesterday.
The drop extended a slide from the previous session, amid growing signs that Asian demand could start to falter as countries look to cut subsidies by raising local fuel prices.
United States crude had fallen US$2.02 to US$126.83 a barrel by 0855 GMT (4.55pm in Singapore), after dropping US$3.34 on Tuesday, and taking losses from last week’s record high of US$135.09 to nearly 6 per cent.
Meanwhile, London Brent crude was down US$1.69 at US$126.62 a barrel.
Earlier yesterday, a research paper released by International Monetary Fund economist Noureddine Krichene stated that there was no reason to expect oil prices to decline soon.
The paper said ‘prudent monetary policy’ may be needed to stabilise the oil market. ‘Short-term forecasting would imply persistence of observed trends,’ it added.
‘Given explosive trends in prices of other commodities, depreciating currencies and weakening financial conditions, recent trends in oil prices might not persist further without triggering world economic recession.’
The decline came in the face of supply problems in Mexico and Nigeria that could have driven oil prices higher. That is an indication that demand concerns are weighing on the market and giving investors reason to pull back from the record-high oil prices, analysts said.
Oil has also been knocked off its peak by growing evidence that consumers are struggling to cope with surging prices.
Demand for oil in the US, the top consumer, and other developed countries has been under pressure, and signs are emerging that this trend could spread across Asia as governments in the region take the knife to subsidies.
‘There are signs that soaring energy prices are now starting to cause ripples even in the booming Asian economies,’ said Mr Edward Meir at MF Global.
Mr Michael Lynch, the president of Strategic Energy & Economic Research in Massachusetts, thinks that energy investors are selling because of recent data showing Americans are driving less as a result of high prices.
