April 18, 2011 / 10:29 AM / in 7 years

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

 * 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.
 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) 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.
 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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