Crude Oil Futures Decline From 30-Month High as IMF Cuts Growth Forecasts

Oil fell from a 30-month high after the International Monetary Fund cut its growth forecasts for the U.S. and Japan, indicating high crude prices pose a risk to global economic expansion.

Futures tumbled the most in almost four weeks as the IMF said in its World Economic Outlook that the U.S. economy will expand at a slower pace than in 2010 amid an unemployment rate above 8 percent and a drop in consumer confidence. Oil also fell as the African Union tried to negotiate a cease-fire in Libya.

The IMF “clearly engendered some downward price pressure across a number of financial markets, including crude oil,” said Jason Schenker, president of Prestige Economics, an energy advisory firm in Austin, Texas. “We’re looking at pretty solid global growth, it’s just a deceleration of growth.”

Oil for May delivery fell $2.87, or 2.5 percent, to settle at $109.92 a barrel on the New York Mercantile Exchange. It was the biggest decline since March 15. Futures settled at $112.79 a barrel on April 8, the highest close since Sept. 22, 2008. Prices have risen 29 percent in the past year.

The threat of further oil-price increases has become a “key downside risk” for global growth, according to the IMF report. Oil will rise 36 percent in 2011 to $107.16 a barrel, based on the average prices of U.K. Brent, Dubai and West Texas Intermediate crudes, the IMF said. The January forecast was for oil at $89.50 a barrel this year.

“The kind of oil price increases we’ve seen so far should not derail the recovery,” Olivier Blanchard, chief economist at the IMF, said on Bloomberg Television’s “Last Word” with Andrea Catherwood.

U.S., Japan

The U.S., the world’s largest economy and the biggest oil consumer, will expand 2.8 percent this year, down from 2.9 percent last year and a 3 percent growth rate for 2011 forecast in January, according to the IMF. The Conference Board reported consumer confidence dropped to a three-month low in March, and the jobless rate was 8.8 percent in Labor Department statistics.

“High energy prices act as a massive tax on the economy and blow out a lot of the work that’s been done to promote an economic rebound,” said Richard Ilczyszyn, a market strategist at Lind-Waldock, a broker in Chicago.

Japanese growth was cut to 1.4 percent from 1.6 percent in the previous forecast after the nation’s March 11 earthquake and tsunami, the IMF said today in Washington. Expansion in China, the world’s second-largest oil-consuming country, was projected at 9.6 percent this year, unchanged from the January forecast.

The run-up in oil prices reduced global economic growth by 0.5 percent to 1 percent in the first quarter, analysts at JPMorgan Chase & Co. led by Lawrence Eagles in New York, said today in a note to clients. The higher prices are “on course” to have a similar impact on the second quarter, they said.

Brent Falls

Brent oil for May settlement dropped $2.67, or 2.1 percent, to end the session at $123.98 a barrel on the ICE Futures Europe exchange in London. Futures earlier touched $127.02, the highest price since Aug. 1, 2008.

The African Union said in a statement today that Libyan leader Muammar 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.”

Libyan rebels rejected the plan because it doesn’t meet their demand that Qaddafi give up power.

“The markets came off a bit, but it’s unclear as to whether this agreement is going to happen,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “We’re going to need to see an end to some of the violence in Libya before paying attention to other things.”

Demand Destruction

Some of the risk that prices will advance may be waning amid “nascent signs of oil demand destruction” in the U.S. as well as a record number of bets that prices will rise, elections in Nigeria and the potential Libyan cease-fire, according to a report by Goldman Sachs Group Inc. analysts led by Jeffrey Currie in London.

Total products supplied averaged over four weeks, a measure of fuel demand, fell for a fifth time in the period ended April 1, according to the U.S. Energy Department.

Hedge funds and other large speculators raised net-long positions by 4.5 percent in the seven days to April 5, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report.

A presidential election next week in Nigeria, Africa’s top oil-producing country, pits President Goodluck Jonathan against 18 rivals.

Oil volume in electronic trading on the Nymex was 646,067 contracts as of 3:34 p.m. in New York. Volume totaled 719,115 contracts April 8, 11 percent below the average of the past three months. Open interest was 1.57 million contracts, the highest level since March 15.

(Source: http://www.bloomberg.com/news/2011-04-11/oil-drops-in-new-york-on-report-that-imf-cut-u-s-japan-growth-forecasts.html)