Crude Oil Declines After IMF Cuts U.S., Japan Growth Forecasts

Oil fell, extending its decline from a 32-month high in London, on speculation the International Monetary Fund will cut its growth forecasts for the U.S. and Japan as commodity prices climb.

Brent crude slid as much as 1.6 percent in London, falling from its highest price since August 2008, after a German government official said the IMF will say in a report to be published today that growth will be slower than predicted. The African Union said Libyan leader Muammar Qaddafi agreed to a cease-fire plan, fueling speculation that exports from the North African nation may recover.

“It is logical to suggest that current oil-price levels might well slow demand increases this year,” said Eugen Weinberg, head of commodity research at Commerzbank AG in Frankfurt. Crude also fell “because of the peace talks in Libya, and also because the recent price increases are considered excessive. Current prices aren’t justified by the supply-and-demand scenario.”

Brent oil for May settlement dropped as much as $1.96 to $124.96 a barrel and was at $125.44 at 1:31 p.m. on the ICE Futures Europe exchange in London. Futures earlier rose to $127.02, the highest price since Aug. 1, 2008, after surging 6.7 percent last week. Oil for May delivery on theNew York Mercantile Exchange fell as much as $1.26 to $111.53 a barrel.

Medium-term deficit reduction strategies in the U.S. and Japan lack credibility, the IMF said in its World Economic Outlook, the German official said on condition of anonymity because the report hasn't yet been published.

Double-Dip Risk

While the likelihood of a double-dip economic slump in the world economy has decreased, risks to growth mean the world economy is more likely to disappoint than to beat expectations and commodity price shocks, especially oil, have emerged as a new risk to the global economy’s expansion, the German official cited the IMF as saying. The IMF left its forecast for global growth unchanged, he said, without giving time-frames.

The IMF estimates damage from the earthquake and tsunami that struck Japan a month ago to amount to between 3 percent and 5 percent of the nation’s gross domestic product. A 6.6- magnitude struck the Tohoku region, southwest of Iwaki, in Japan today, the latest aftershock to strike the country following the March 11 disaster that killed more than 27,300 and caused radiation leaks at the Fukushima Dai-Ichi nuclear plant.

The union of African states said in a statement today that Qaddafi agreed to “the immediate cessation of all hostilities” and to negotiations “with the view to adopting and implementing the political reforms necessary for the elimination of the causes of the current crisis.”

Brent Premium

South African President Jacob Zuma yesterday presented Qaddafi with the cease-fire plan, which also calls for cooperation in delivering humanitarian aid and protecting foreign nationals in Libya. The AU delegation will meet today with rebel leaders in Benghazi, their stronghold in the east.

Brent crude traded at a premium of $13.70 a barrel to U.S. futures. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21 as unrest spread in the Middle East and North Africa and stockpiles climbed at Cushing, Oklahoma, the delivery point for New York futures. The spread averaged 76 cents last year.

An increase in oil prices and rising interest rates may threaten economic growth, BP Plc’s chief economist said. The basket price of crude for the Organization of Petroleum Exporting Countries, representing the main export crudes of all member countries, rose above $120 a barrel today for the first time since Aug. 8, 2008.

“We know one thing from history, rising energy prices and rising interest rates are toxic for economic growth,” Christof Ruehl told reporters today in Perth. “The combination is troublesome.”

Hedge funds raised bets on higher crude prices as continued airstrikes in Libya raised concerns about production after the country’s conflict ends.

Net-long positions in oil held by hedge funds, commodity pools and commodity-trading advisers, increased by 13,231 futures and options combined, or 4.5 percent, to 305,297, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the third-highest level in records dating back to 2006.

(Source: http://www.bloomberg.com/news/2011-04-11/oil-trades-near-30-month-high-in-new-york-amid-middle-east-unrest-dollar.html)