SINGAPORE: Crude prices tanked in Asia Monday, with sentiment hit by Standard & Poor’s decision last week to cut Washington’s top-notch credit rating for the first time, analysts said.
In afternoon trade, New York’s main contract light sweet crude for September delivery tumbled $2.99, or 3.44 per cent, to $83.89 a barrel, from its closing price on Friday.
Brent North Sea crude for September delivery sank $2.83, or 2.59 per cent, to $106.54.
“What we do feel is the re-rating of the debt in the US has knocked confidence out of the market,” said Jonathan Barratt, Sydney-based managing director with Commodity Broking Services.
“With crude where it is at the moment, that confidence will affect demand or expectations of demand in the market,” he told AFP.
The United States, the world’s largest oil consumer, saw its top-notch AAA credit rating downgraded for the first time when S&P on Friday cut it to AA+ with a negative outlook on concerns over its debt.
“The announcement was not really a surprise because the S&P had been very clear about what it wanted to see in order for the US to maintain its AAA rating, and the agreement reached last week had not met those criteria,” Barclays Capital said in a report.
“To many observers, it was really a question of when it would happen rather than whether it would, though probably few expected it to be quite so soon.” US Treasury Secretary Timothy Geithner on Sunday fiercely criticised the agency’s move, saying the world’s largest economy remained strong and resilient.
“I think S&P has shown really terrible judgment and they’ve handled themselves poorly, and they have shown a stunning lack of knowledge about basic US fiscal budget math, and I think they came to exactly the wrong conclusion,” Geithner said in an interview with NBC News and CNBC.
“There is no risk the US would never meet its obligations. We’ve got some challenge ahead of us, but we’ll be able to work through the challenges. We’ll get through this.” The decline in oil prices mirrored the general volatility in global financial markets shaken by the US rating downgrade.
Asian stocks tumbled on Monday, with Tokyo down two per cent, Hong Kong down four per cent and Sydney 2.4 per cent off.
Financial chiefs and central bankers of the G7 industrialised nations pledged to “take all necessary measures” in coordinated action to support stability and the European Central Bank said it would buy up eurozone debt.
Fears of a global meltdown, which some see as potentially worse than the 2008 collapse, sent leaders into a flurry of phone calls between Berlin, London, Paris and Washington to stem the tide.