LONDON (SHARECAST) - It was a tale of two cities in the oil market on Friday as traders either side of the Atlantic absorbed the International Energy Agency's (IEA) coordinated release of 60 million barrels.
The decision, which was announced on Thursday, saw an eight percent drop in futures pricing in London on Friday but the New York Mercantile Exchange actually saw a slight increase of 14 cents for August contracts, which stabilised around the $91.16 mark.
On London's ICE exchange August contracts for Brent Crude fell $2.14 to $105.12 a barrel – the lowest price since mid-February.
The gap between the US and European benchmarks, Brent Crude and West Texas Intermediate, is clearly narrowing as a result of the IEA's action – which is designed to fill the gap left by the loss of production in Libya.
The United States is providing around half of the 60 million “strategic release” barrels, Europe 20 million and Asia around 10 million.
The recent weakness in oil is not merely a function of the IEA, it is also influenced by a perception of macroeconomic weakness in both the US and southern Europe.
A recent spate of bad numbers from the US, including a downgrading of official growth forecasts (to between 2.7% and 2.9% for 2011) has lead to expectations of weak demand.
The sluggish US data, allied to the ongoing uncertainty over the Greek debt crisis has made some question how necessary the IEA action was.
Meanwhile, gold is seeing a significant weakening in price. Gold for August delivery fell $19.60 on the Commodity Exchange (Comex) in New York, closing at $1,500.90, the lowest level for just over a month.
Silver also dropped, by 36.6 cents to $34.65 per ounce, capping a fall of over 3 percent since the beginning of the week.
