Oil: Prices drop below US$50 on signs of slowing US economy

Oil prices fell below US$50 on Friday, to the lowest in 10 weeks, as traders focused on slow economic growth and expanding crude oil supplies in the United States.

US light crude settled at US$49.72 a barrel, down 4 per cent on the day, while London Brent crude fell US$1.39 to US$51.09.

It was the first time since Feb. 18 that US oil prices settled under US$50. And oil prices fell 10 per cent in the past week.

Prices have dropped 14.7 per cent since the US$58.28 record high for US crude set April 4. Opec has been producing near full-tilt as US demand is going through its seasonal second-quarter lull. That has brought crude supplies to their highest level since mid-2002.

US government data on Thursday showed the slowest rate of economic growth in two years, with the US economy expanding at an annualized rate of 3.1 per cent in the first quarter of 2005.

Analysts said that while supply-and-demand fundamental factors are bearish, the oil price slide Friday was also linked to technical pricing factors such as crude breaching US$50.

"We broke through psychological support at US$50 and many people would say they're going to sell, thinking maybe the bull market is over," said Mark Waggoner, president of Excel Futures Inc., of Huntington Beach, California.

Katherine Spector, head of energy research at JP Morgan Securities in New York, said in the past year to 18 months of escalating oil prices, there have been downward corrections every two or three months.

The key to a lower price that is sustainable and not just a short-term correction the market has experienced in the past year "is the continued availability of fresh barrels of oil and further signs of sluggish growth such as Thursday's below-expected US GDP growth figure," wrote analysts at brokerage Refco.

"If recent reappraisals of the outlook for global economic growth this year continue to be downgraded, then it is possible to see oil revisit the upper-US$40s. But we aren't out of the woods in terms of petrol, given the typical seasonal peak in prices during the spring ahead of the summer driving season. "

Commercial inventories in the United States, the world's biggest oil user, jumped 5.5 million barrels last week following the third-highest import flow total on record, data showed on Wednesday.

US crude oil stockpiles now stand 9 per cent above one year ago while petrol inventories are running at the top end of the range for the time of year.

President George W. Bush, who met earlier this week with Saudi Crown Prince Abdullah, said on Thursday that his administration would encourage oil producers to maximize output.

- REUTERS