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Oil near $72 as stocks sink, recovery questioned

Oil prices fell to near $72 a barrel today in Asia as China's stock market tumbled and commodities investors questioned whether the US economy can recover strongly in the second half.

business Updated: Aug 31, 2009 12:12 IST

Oil prices fell to near $72 a barrel on Monday in Asia as China's stock market tumbled and commodities investors questioned whether the US economy can recover strongly in the second half.

Benchmark crude for October delivery was down 41 cents to $72.34 a barrel by midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract on Friday added 25 cents to settle at $72.74 after tumbling from near $75 earlier in the week. Tumbling Asian stock markets, led by a 5.4 per cent fall in China's benchmark, provided a negative cue for crude. Oil investors often look to stock markets as a barometer of sentiment about the economy.

Oil has traded near $70 a barrel for most of the last few months as investors struggle to gauge how robust the US recovery will be. Crude has tried and failed several times, including last week, to break through the $75 level.

"Oil looks a little tired," said Christoffer Moltke-Leth, head of sales for Saxo Capital Markets in Singapore. "We're seeing an economic recovery, but that's already been built into the price." The US economy will likely have to grow at least 2 per cent in the third quarter to enthuse traders and push the oil price past $75, Moltke-Leth said.

Investors will be eyeing the US unemployment report on Friday as a key indicator of the economy's health. A high unemployment rate this year has undermined consumer confidence and hurt crude demand. Oil could drift lower to near $65 a barrel during the next month on investor concerns the current economic recovery isn't sustainable, Moltke-Leth said.

"We could see another dip next year when the fiscal stimulus starts to fade," he said. "The consumer is still being careful." In other Nymex trading, gasoline for September delivery was up 0.82 cent at $2.07 a gallon and heating oil was steady at $1.86 a gallon.

In London, Brent crude was down 49 cents at $72.30.