* Slowing U.S. GDP growth raises hopes of QE3
* U.S. dollar hits two-month low, supports commodities
* Spanish economy slips into recession
(Adds fresh quotes, updates prices)
By Claire Milhench
LONDON, April 30 (Reuters) – Brent crude prices slipped but
held above $119 per barrel on Monday as the prospect of a third
round of liquidity stimulus by the United States and a weaker
dollar continued to support commodities despite slower economic
growth around the globe.
Brent June crude futures were down 62 cents to
$119.21 a barrel by 1119 GMT, on track to close down for the
second consecutive month. U.S. crude was down 66 cents at
$104.27 a barrel.
Analysts and traders said the market was effectively trading
sideways following data on Friday which showed
slower-than-expected U.S. GDP growth in the first quarter,
raising hopes of a fresh liquidity injection.
“There are two factors at play that are preventing another
sharp drop at the moment – the weaker U.S. dollar and the
expectation that the Fed will come up another round of
quantitative easing,” said Carsten Fritsch, an energy analyst at
Commerzbank in Frankfurt. “That is supporting commodity prices.”
The dollar hit a two-month low against a basket of
currencies on Monday. A weaker dollar
makes commodities priced in dollars more affordable for buyers
using other currencies.
James Zhang, energy analyst at Standard Bank, said the
market was in a cautious mood ahead of a heavy week for U.S.
data releases.
“The market is undecided, but if anything there is a
slightly bearish bias given that the weekly U.S. jobless report
has disappointed over the last few weeks. That potentially
points to a downbeat non-farm payroll report on Friday,” he
said.
But he added that whenever U.S. data show signs of weakness,
the market becomes hopeful of another round of monetary easing.
“So we are getting a tug-of-war between what is going on in
the real economy and what the central banks might do with
monetary policy. Prices will swing up and down within a fairly
narrow range for a bit unless the data really surprises,” he
suggested.
In Europe, Spain’s economy slipped into recession in the
first quarter as domestic demand shrank against a background of
deep government spending cuts.
Although GDP declined 0.3 percent quarter-on-quarter and 0.4
percent year-on-year, this was not as bad as analysts had
forecast. “The Spanish GDP number, which could have been
depressing came in a bit above expectations but not much,” said
Filip Petersson, commodity strategist at SEB.
Trading volumes are expected to be fairly light today
because of the May Day bank holiday across much of Europe on
Tuesday. This may limit oil price moves.
“It’s still in the same range as Friday and because of the
European holiday tomorrow, a lot of people are out today as
well, which is making the market very quiet,” said Christopher
Bellew, a trader at Jefferies Bache in London. “It’s very much
sideways at the moment.”
Analysts expressed surprise at how well oil was holding up
given the bearish newsflow of the past few weeks.
“This is despite the fact that tensions with Iran have eased
which should reduce the risk premium, and there are signs that
growth momentum is slowing in the two-largest oil consuming
nations, the United States and China,” said Commerzbank’s
Fritsch.
SUPPLY FACTOR
SEB’s Petersson said equity markets had run a bit ahead of
crude, which could be providing some support. But he added that
the oil supply factor should continue to weigh, with
over-production from Saudi Arabia.
“There is an Armada of tankers heading towards Asia from the
Middle East so there’s a general feeling of over-supply in the
market,” he said.
Speculator positioning in U.S. crude oil futures and options
was mixed in the week to April 24, CFTC data showed on Friday,
with traders cutting their positions on the New York Mercantile
Exchange (NYMEX) but raising them in London.
Investors will scour data on Chinese PMI on Tuesday and U.S.
employment on Friday for a better read on the economic health of
the world’s two largest oil consumers.
“Maybe the Chicago PMI data could do something later today
but I think the most interesting thing coming up now is the
Chinese PMI tomorrow,” said Petersson.
Chicago April PMI data, due out at 1345 GMT, is forecast to
ease back to 60.5 in April, from 62.2 last month.
(Additional reporting by Florence Tan in Singapore; Editing by
Alison Birrane)
