Oil prices under pressure from rising economic concerns

[June 13, 2016]  By Libby George

LONDON (Reuters) - Oil prices fell on Monday, weighed down by gloomy economic prospects in Europe and Asia and a related strengthening in the U.S. dollar, which makes fuel imports for countries using other currencies more expensive.

The softening comes a week after crude prices hit 2016 highs on the back of a quicker-than-expected rebalancing in physical oil markets.

Brent crude oil futures fell to $50.03 per barrel, at 0921 GMT, down 51 cents, after trading as low as $49.80.

U.S. crude was down 61 cents at $48.46 a barrel.

"A marked increase in risk aversion, as evidenced in falling stock markets and an appreciating U.S. dollar, is responsible for the latest losses," Commerzbank analyst Carsten Fritsch said in a note.

The dollar has risen 1.2 percent from June lows against a basket of currencies, lifted by the prospect of a potential hike in U.S. interest rates, concerns over Asia's economy and a fears that Britain will vote later this month to leave the European Union.

There are also worries about faltering growth in China, largely due to industrial overcapacity and spiralling debt, while Asian and European shares fell sharply on concerns over the economic fallout of a Brexit that have lurked in the background for weeks.

On Monday, the European Central Bank also said the fall in oil prices over the past two years would add less to global growth than earlier thought and the overall impact could even be negative.

Oil traders have already sold out of long positions that have profited from an almost doubling in crude prices since hitting over decade lows earlier this year.

"Oil may be looking healthier than it has in a very long time, but it is not yet out of the woods," Barclays said in a note.

Despite this, some analysts expect oil demand in Asia and especially China to remain strong.

Vehicle sales in China rose 9.8 percent to 2.1 million units in May, the China Association of Automobile Manufacturers said on Monday, in the strongest year-on-year growth since December 2015.
 

In the first five months of 2016, sales were up 7.0 percent.

"Against the backdrop of low international oil prices, Chinese crude oil demand will remain well supported this year as demand continues to gain traction from stockpiling activities and refining use," energy consultancy FGE said.

"We expect Chinese crude oil imports to grow by 730,000-760,00 bpd this year," it said.

(Additional reporting by Henning Gloystein in Singapore; editing by Jason Neely)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.