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LONDON - Oil prices fell below $87 a barrel on Wednesday as stock markets declined further, shrugging off a temporary reprieve from Tuesday's steep cut in US interest rates amid persistent fears of a global economic slowdown.
US crude fell $2.44 to $86.77 a barrel by 1745 GMT, after hitting a low of $86.11 in the previous session amid a global stock market rout. London Brent crude fell $1.97 to $86.48 a barrel.
Some analysts said funds and speculators have been exiting open positions in oil and other commodities to cover margin calls and finance losses in equity markets.
"I think a lot of people realise the underlying weakness of the economy is still unfolding ... traders feel that there are lots more losses still waiting to be revealed," said Robert Nunan, manager of Mitsubishi Corp's risk management unit.
Oil prices plunged on Monday and Tuesday as world stock markets posted their steepest losses since Sept. 11, 2001, amid widespread concerns that the US credit and housing crisis could trigger a recession, curbing the steady rise in oil demand that has fueled prices for five years.
Analysts said commodity markets were still holding up relatively well as the underlying economic momentum, especially in Asia, was still supportive.
"Oil's ability to go down another $10 to $15 from here really depends upon a deteriorating outlook for the economy. We are not going to go down $15 unless the economic outlook starts to look pretty bad," said Francisco Blanch, head of commodity research at Merrill Lynch.
While oil prices are down almost 12 per cent from their all-time peak above $100 a barrel hit Jan. 3, they are still up more than 60 per cent from a year ago, supported by tight inventory levels, Opec production restraints and strong demand from investors seeking higher returns and a possible hedge against inflation.
Goldman Sachs said that, while oil prices could slide into the low $80s if speculators liquidated their long positions, strong fundamentals would probably prevent funds from selling out completely.
US crude oil stocks, which rose last week for the first time in nine weeks, after hitting their lowest since 2004, were believed to have risen by 2.1 million barrels last week, a preliminary Reuters poll of analysts found.
US government inventory data, due Thursday, a day later than usual due to Monday's US holiday, is also likely to show a rise of 1.4 million barrels in petrol stocks as refiners begin to build up supplies ahead of summer, the poll showed. (Additional reporting by Luke Pachymuthu; Editing by Walter Bagley)
- REUTERS
