Oil Drops on Economy Risk; BofA’s Blanch Sees Demand Destruction

17-May-11

Oil prices dropped after President Barack Obama said failure to raise the US debt ceiling may unravel global finances and threaten growth in USA, as per Bloomberg. Futures slipped by 1.3% after Obama said the U.S. “could have a worse recession than we’ve already had,” according to a segment taped for CBS’s “Face the Nation” program. Prices also slid on concern Greece’s debt crisis may worsen, threatening Europe’s economic growth. Crude for June delivery fell by over a dollar to US$98.3 on the Nymex, while Brent for June settlement dipped to US$113.3. The US administration is to commence stimulating domestic crude production to blunt rising gasoline prices with measures including encouraging drilling in Alaska and giving oil companies more time to comply with safety regulations, Obama said in his weekly address. Gasoline prices outpaced crude, as flooding from the Mississippi River threatened the second-largest U.S. oil refinery. Four of the 25 gates were opened at Louisiana’s Morganza floodway, allowing the Mississippi River to pour into the Atchafalaya River basin. Inside the threatened area are 2,264 oil or natural gas wells that each day produce 19,278 barrels of crude, about 10% of Louisiana’s onshore total, and 252.6 million cubic feet of gas. The Mississippi threatens to reach to a flow rate of 1.62 million cubic feet per second unless water was diverted, putting in peril the levees at Baton Rouge, home to an estimated 229,000 people and industrial areas that include an Exxon Mobil Corp. refinery, the company’s second largest U.S. facility.