Rating drop hits oil prices

File photo / NZ Herald

Oil prices fell below US$107 a barrel yesterday in Asia after a credit agency cut the outlook of its United States rating, raising concerns about economic growth and crude demand.

Benchmark crude for May delivery was down 49c at US$106.63 a barrel at mid-day Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell US$2.54, or 2.3 per cent, to settle at US$107.12 on Monday.

In London, Brent crude for June delivery was down 43c to US$121.18 a barrel on the ICE Futures exchange.

Runaway debt could lead to a weaker dollar and faster inflation, triggering higher interest rates and slower economic growth, analysts said. The announcement also raised concerns about the possibility of cuts in government spending.

Standard & Poor's Ratings Service lowered its outlook for the US long-term debt rating to "negative" from "stable". S&P didn't reduce its AAA rating but warned that the country's $1.5 trillion deficit, at 11 per cent of gross domestic product, was too high.

"The S&P move gives the bears a fresh lease on a correction in oil prices," Cameron Hanover said.

Some analysts expect the US dollar to continue to weaken, which would help send oil prices higher.

- AP