Oil drops more than a dollar to $126

Oil dropped by more than a dollar to below $127 a barrel yesterday, as traders weighed the threat to sustained demand from changes in fuel subsidies in Asia.

US light crude for July delivery fell $1.21 a barrel to $126.55 by 1215 GMT. Prices fell initially on Monday too, but ended the day higher in a refined products-led recovery from session lows. London Brent crude fell $1.25 to $126.77 a barrel.

Analysts said there were growing concerns about oil demand holding up, given the mounting pressure on high-growth Asian economies to slash subsidies.

"The demand side of the equation is being priced in," said Olivier Jakob at Petromatrix.

The head of the International Energy Agency (IEA) said on Monday that world oil demand was shrinking more quickly than first thought and the IEA may cut its demand growth forecasts further.

Most of that decline in demand has so far been in developed economies as sharp price rises bite for consumers and industry.

The decline came despite US dollar weakness and further credit jitters following a report that investment bank Lehman Brothers may raise up to $4 billion of capital and the downgrading of Standard & Poor's credit ratings for three investment banks.

The dollar fell 0.4 percent to $1.5594 per euro at 8:40 am in New York, from $1.5537 yesterday. It increased 0.1 percent to 104.54 yen, from 104.43.

Agencies

(China Daily 06/04/2008 page17)