Oil drops as concerns over European and US economies feed demand worries

16-Jun-11

Oil prices fell by almost two dollars as concerns abound on fresh signs of weakness in the European and U.S. economies. Crude has seen a sharp fall as these concerns are beginning to impact demand, and the dollar rose on risk aversion after a gloomy U.S. inflation report. Crude on the Nymex fell to US$97.3, while Brent crude for July delivery fell to US$118.20 a barrel. Core consumer inflation in USA rose more than expected in May to post its largest increase in nearly three years, which could prompt the Federal Reserve to increase interest rates sooner than expected. Another report showed manufacturing in New York State unexpectedly shrank for the first time since November, renewing worries about whether the economy is slowing as the Greece debt problem continues to simmer, Concerns abound that the financial crisis in Greece could spread, with European banks getting burned if the country defaults on its debt. This has sent the dollar surging against the euro. Euro zone ministers failed to reach agreement on how private holders of Greek debt should share the costs of a new bailout, putting the onus on the leaders of Germany and France to forge a deal later this week. U.S. crude oil inventories fell 3.41 million barrels last week, as per data from the U.S. Energy Information Administration.