UPDATE 13-Oil falls on S&P U.S. outlook revision, demand worry

Mon Apr 18, 2011 8:29pm GMT
 

 * S&P revises U.S. ratings outlook from stable to negative
 * Saudi confirms output cut, says market well supplied
 * Coming up: U.S. May crude contract expiry on Tuesday
 (Updates prices, market activity throughout)
 By Robert Gibbons
 NEW YORK, April 18 (Reuters) - Oil fell sharply on Monday
after ratings agency S&P revised lower its U.S. credit outlook
to negative and OPEC ministers said high crude prices could
place a major strain on consumer countries' economies.
 Although it affirmed the United States' "AAA" credit
rating, Standard & Poor's said there was a risk policymakers
may not reach agreement on how to address the country's
long-term fiscal pressures. [ID:nN18195555]
 "The U.S. debt situation got a reality check this morning
from the move by S&P," said John Kilduff, partner at Again
Capital in New York. "Only precious metals will be seen as
attractive in the aftermath of the outlook downgrade."
 OPEC ministers voiced their concerns at a meeting in
Kuwait, where Nobuo Tanaka, executive director of the
International Energy Agency, said the IEA already was, "seeing
some indication of the slowdown in demand, and it's alarming."
[ID:nLDE73H03G]
 Saudi Oil Minister Ali al-Naimi said a global economic
recovery remained "patchy", while his Kuwaiti counterpart added
that high oil prices threaten to become an economic burden for
many big consuming countries. [ID:nLDE73H03G]
 Oil earlier felt pressure after Saudi Arabia on Sunday
confirmed it had cut output by more than 800,000 barrels per
day in March because of weak demand for its crude.
[ID:nLDE73G0AA]
 Brent crude for June LCOc1 fell $1.84 to settle at
$121.61 a barrel, having slipped to a session low of $121.
 U.S. crude CLc1 for May fell $2.54 to settle at $107.12,
after slipping as low as $106.54. The U.S. May crude contract
expires on Tuesday.
 U.S. equities fell more than 1 percent on sovereign debt
fears on both sides of the Atlantic. [.N]
 Equities and oil also felt pressure from another Chinese
bank reserve hike over the weekend, the latest move to control
inflation that could curb demand growth. [ID:nL3E7FH05Y]
 Most commodities fell, hit by S&P move and concerns over
Chinese demand. One exception was gold -- seen as a store of
value -- which shot to a record near $1,500 an ounce.
[COM/WRAP] [MET/L]
 S&P said there is a 1-in-3 chance it could cut its
long-term credit rating on the United States within two years.
 "This new warning, this time from S&P, highlights the need
for the U.S. to take better control of its fiscal destiny if it
is to avoid higher borrowing costs and maintain its central
role at the core of the global economy," Mohamed El-Erian,
chief executive at Pimco, which oversees $1.2 trillion in
assets, told Reuters.
 WIDENING DEMAND CONCERNS
 China's hike to banks' required reserves, the fourth this
year, added to investor caution about economic growth.
 Crude fell early last week after Goldman Sachs (GS.N: Quote) and
other key forecasters warned high oil prices were eroding
demand. It rebounded late in the week on encouraging U.S.
economic data and a steep fall in U.S. gasoline inventories.
 The euro posted its biggest one-day decline since November
against the dollar as concerns increased that Greece will be
forced to restructure its debt and as sentiment against aid
grows in Europe. [USD/] The dollar index .DXY, measuring the
greenback against a basket of currencies, strengthened.
 A stronger dollar can pressure oil prices by making
dollar-denominated crude more expensive for consumers using
other currencies and by drawing investment to foreign exchange
markets for better returns.
 AFRICA/MIDDLE EAST SUPPLY THREATS
 Lingering threats to Africa and Middle East oil supplies
that helped spark prices to recent, 32-month peaks, remained.
 Forces loyal to Muammar Gaddafi bombarded Misrata, Libya's
third-largest city, Clashes broke out in Yemen and thousands
demanded the overthrow of Syrian President Bashar al-Assad in
escalating unrest. [ID:nLDE73G0JB] [ID:nLDE73H11R]
[ID:nLDE73H0QJ]
 Oil investors also eyed Nigeria, where rioting took place
in northern cities after a contentious election, according to
the Nigerian Red Cross. [ID:nLDE73H1M2]
 (Additional reporting by Claire Milhench and Alex Lawler in
London and Francis Kan in Singapore; Editing by Dale Hudson and
David Gregorio)


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