06 May 2011

Crude drops below US$100

West Texas Intermediate crude oil for June delivery fell below US$100 in New York trading Thursday.

Brent crude, the benchmark for Newfoundland light crude, dropped $12 to trade at US$109 a barrel on Thursday afternoon.

Some analysts blamed weak European and American economic data for the drop. The security picture also changed recently.  While unrest in the Middle East threatens global supplies, the markets appear to have reacted strongly to the death this week of Osama bin Laden.

According to Reuters report carried in the the Ottawa Citizen:

“Crude oil is selling off sharply for two primary reasons: QE2 is coming to an end in June and without a QE3 behind it, it will take liquidity out of the market, hurting risky asset classes such as commodities,” said Chris Jarvis, senior analyst, Caprock Risk Management in New Hampshire, referring to the Federal Reserve’s quantitative easing.

“With Osama bin Laden dead, the market is adjusting the geopolitical risk premium down accordingly. Given this, speculative money is being taking off the table.”

The provincial government’s 2011 budget is based on oil prices average US$108 per barrel for the year. - srbp -