Oil extends slide after US downgrade

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Oil extends slide after US downgrade

Oil plunged in New York after Standard & Poor's lowered the US credit rating by one level, the first-ever reduction for the world's biggest crude-consuming nation, stoking concern that debt crises will derail the global economic recovery.

Futures tumbled as much as 3.7 per cent after S&P announced on Aug. 5 that it had cut the AAA rating for the US to AA+ in response to the deal President Barack Obama and lawmakers reached to raise the $US14.3 trillion debt limit. US stock futures and the dollar also declined today. The European Central Bank said yesterday it will “actively implement” its bond- purchase program to counter the sovereign debt crisis.

“While the US downgrade is dominating headlines, troubles in Europe are also undermining markets,” economists at ANZ., led by Warren Hogan, wrote in a note today. The bank estimates oil will average $US100 a barrel in the third quarter. “Progress in dealing with the euro-zone sovereign debt remains painfully slow.”

Crude for September delivery fell as much as $US3.20 to $US83.68 a barrel in electronic trading on the New York Mercantile Exchange and was at $US84.32 at 9:24 a.m. Sydney time. The contract rose 25 cents to $US86.88 on Aug. 5. Prices dropped 9.2 per cent last week, the biggest decline since May, and are up 3 per cent the past year.

Brent oil for September settlement slid as much as $US3.17, or 2.9 per cent, to $US106.20 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $US22.57 to US futures, compared with a record close of $US22.67 on Aug. 2.

Futures, US dollar fall

Futures on the Standard & Poor's 500 Index expiring next month lost 2 per cent to 1,173.70 at 8:25 a.m. in Tokyo following a two-week slump that dragged the gauge down 11 per cent and erased this year's gain. The US dollar fell to a record low versus the Swiss franc and slid for a second day against the yen.

The European Central Bank welcomed Italy and Spain's efforts to reduce their budget deficits, according to a statement issued in the name of President Jean-Claude Trichet after an emergency teleconference meeting of policy makers. It also called on all euro-area governments to follow through on the measures agreed at a July 21 summit, including allowing the European Financial Stability Facility to purchase bonds on the secondary market.

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Analysts surveyed by Bloomberg News before the US ratings downgrade predicted crude in New York may decline this week on speculation the economy will weaken and reduce fuel consumption. Eighteen of 35 analysts, or 51 per cent, forecast oil will decrease through Aug. 12. Nine respondents, or 26 per cent, predicted prices will increase and eight estimated there will be little change.

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