Grim global economy leads to lower oil prices

West Texas Intermediate hits US$96.92 a barrel

November 23, 2011

TORONTO: Oil fell $1.91 to US$96 a barrel on November 23 amid pessimism about global economic prospects. The grim outlook deepened after a manufacturing survey from HSBC indicated China’s industrial sector is slowing. Other data showed eurozone industrial orders collapsed by a massive 6.4 per cent in September from the previous month.

Oil prices also fell on fears that the world economy will weaken and push down demand for crude. West Texas Intermediate oil, which is used as a benchmark to price oil in much of the US, fell 75 cents to finish at US$96.92 a barrel in New York. Brent crude, used to price oil produced in many other countries, fell 74 cents to end at US$106.66 a barrel in London.

The inability of Europe to deal with its crushing government debt problems is raising concerns the region will fall into recession. Also, the fear remains the world financial system could seize if European banks and banks with ties to Europe stop lending. When the economy slows, demand for crude oil and refined products like diesel and gasoline falls because fewer goods are produced and shipped and people travel less.

The price of oil was also pushed lower by a stronger US dollar. Oil is priced in the American currency, so when the dollar becomes more valuable compared with other currencies, oil becomes more expensive to holders of foreign currency and they tend to buy less of it.

Benchmark US crude spiked to nearly US$103 a barrel after a Canadian pipeline company announced plans to try to relieve a glut of landlocked oil at a major hub in Oklahoma by shipping it to the gulf coast. Brent crude fell because the plan would add to supplies of oil that can be shipped by sea, relieving a relative shortage.