Oil Prices Drop as China Cuts Growth Estimate

March 5, 2012
Beijing seeks to reduce reliance on exports, control inflation.

World oil prices retreated on Monday in line with most commodity markets as China, the world's biggest energy consumer, slashed its growth forecast, analysts said.

New York's main contract, light sweet crude for delivery in April, shed 87 cents to $105.83 a barrel.

Brent North Sea crude for April lost 44 cents to $123.21 in London midday trading.

Prices fell due to a "deterioration of market sentiment in general," said Commerzbank analyst Carsten Fritsch.

"Everything is lower in the commodity space -- oil, metals and most agriculturals."

Sucden Financial Research analyst Myrto Sokou added: "Crude oil prices are consolidating within the recent range, as disappointing Chinese economic data weighed on market sentiment."

Prices were still relatively high, with Brent crude last week striking a near four-year peak above $128 following upbeat economic data and over fears of Middle East supply disruptions.

On Monday, Chinese Premier Wen Jiabao said his country was targeting growth of 7.5% in 2012, a third straight reduction as the world's number two economy is buffeted by ongoing troubles in the West and high oil prices.

Wen's growth target, announced as he opened the annual session of the National People's Congress (NPC), follows expansion of 9.2% last year and 10.4% in 2010.

The "slightly lower" target was aimed at "accelerating the transformation of the pattern of economic development" as Beijing seeks to reduce its reliance on exports to drive growth amid economic strains in Western nations.

Leaders also set an inflation target of 4.0% for the year, unchanged from last year, after consumer prices rose 5.4% in 2011.

Despite the drop in oil prices, analysts said factors such as unrest over Iran's nuclear ambitions would continue to support the market.

"A rosier world economy needing more energy and worries over supplies are putting upward pressure on prices," said Justin Harper, market strategist for IG Markets.

Despite U.S. President Barack Obama's comments on Sunday calming fears of an imminent pre-emptive strike on Iran, "the fact that it won't happen soon is unlikely to halt creeping prices for long," Harper said in a note to clients.

"Prices could still head upwards with improving economic data expected this week," he added.

The United States is the world's biggest oil consumer and a stronger U.S. economy will mean greater demand.

The diplomatic row between major Western powers and Iran remains a key influence on investors' decisions, analysts said.

Obama on Sunday criticized "loose talk of war," and pleaded for patience in ending the nuclear stand-off with Iran, arguing that sustained international pressure would force Tehran to the negotiating table.

His comments came amid reports Israel is eager to move more quickly and decisively against Iran's nuclear activities, using a military strike to stop it even reaching a point where it can decide to produce atomic weapons.

Western powers have already imposed a raft of economic sanctions on Tehran in a bid to halt its controversial nuclear program, which is believed to mask a drive to build weapons.

Tehran denies the charge, and has warned that it could close the Strait of Hormuz -- a key transit route for global oil supplies -- if increased Western sanctions halt Iranian oil exports.

The Islamic republic is the world's fifth largest oil exporter and the second biggest producer in the OPEC cartel.

Copyright 2012 Agence France-Presse

See also:

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China Predicted to Become the 'World's Trade Powerhouse'

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