Crude oil futures fell, after rising above US$58 a barrel for the first time yesterday, as the EU cut its economic growth forecast and as OPEC members began talks on a further production increase.
The European Commission yesterday reduced its growth prediction for this year for the second time in six months as record oil costs weigh on the economy of the dozen countries that use the euro.
OPEC is ready to boost its output quota by 10 percent this year to stop record prices hurting world growth, Adnan Shihab-Eldin, the group's acting secretary general, said on Sunday.
"With the EU lowering its growth forecast and US raising interest rates, we can expect crude oil prices to settle around US$50 a barrel," said Dhimant Shah, fund manager at ASK Raymond James in Mumbai. "OPEC would not like the US and Europe to be hurt because if their demand falls, OPEC will be hurt."
Crude oil for May delivery fell as much as US$0.46, or 0.8 percent, to US$56.55 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at US$56.78 at 2:33pm Singapore time.
Yesterday, the May contract fell US$0.26, or 0.5 percent, to US$57.01 a barrel, having gained more than US$3 the previous two days. Oil reached US$58.28 a barrel yesterday, the highest intraday price since trading began in 1983.
Lower EU growth
The European Commission meanwhile yesterday lowered its growth forecast for this year.
Economic growth in Europe will slow to 1.6 percent this year, less than the 2 percent predicted in October and down from 2 percent last year, EU Monetary Affairs Commissioner Joaquin Almunia said in Brussels yesterday.
"The fundamentals are starting to work against crude oil," said Mike Armbruster, co-founder of Altavest Worldwide Trading Inc in Laguna Hills, California. "Some of the economies around the world are starting to slow down."
Unemployment in Germany, Europe's largest economy and the world's fourth-biggest oil user, reached a post-World War II record of 12 percent last month, the government said on March 31.
Confidence among large manufacturers in Japan, the world's biggest user of oil after the US and China, fell to a one-year low in the first quarter, the Bank of Japan's Tankan survey showed last Friday. The index fell to 14 points last month from 22 in December. Japan's economy grew at a 0.5 percent annual pace in the fourth quarter.
Oil also dropped after the dollar traded near a seven-week high against the euro, on speculation Federal Reserve Chairman Alan Greenspan will reinforce intentions to keep raising interest rates. A stronger dollar increases the cost of oil in other currencies.
Increased output
OPEC countries, which produce 40 percent of the world's oil, raised its daily output quota by 500,000 barrels to 27.5 million on March 16 to help boost global stockpiles before the fourth quarter when it expects demand to peak. It pledged to add another half million barrels if necessary.
Talks have begun to increase production next month, Shihab-Eldin said.
OPEC could add another 500,000 barrels a day in the third quarter, and may add as much as 800,000 barrels a day in the fourth quarter.
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