Oil Prices Down on Global Demand Worries

NEW YORK ( TheStreet) -- Texas light sweet crude oil prices continued falling Monday on concerns about slowing global demand and the impact of Saudi Arabia's oil output hike.

Trading was also influenced by the looming end of the U.S. government's bond buying program later this month and the effect of China's inflation problems on the dollar.

West Texas Intermediate light sweet crude oil for July delivery was falling $2.61 to $96.68 and the Brent Crude contract, earlier trading in positive territory, was down 98 cents to $117.80. The WTI is utilized in the U.S., while Brent crude, sourced in Europe, is bound for destinations all over the world.

Currently, U.S. oil storage levels are full, with supplies at record highs, at the main delivery point in Cushing, Okla. This, as U.S. oil demand continues to be softer than that of emerging economies such as China, which has become the world's number one energy consumer.

Brent crude prices was up earlier in the day on the buildup of risk premiums, given the greater ties of Brent oil to the overall macroeconomic risk picture -- such as those relating to tensions in the Middle East and North Africa. The turnaround later in the day could explained by a bout of risk aversion after Standard & Poor's slashed Greece's credit rating by three notches.

Still, the greater picture continues to point to a widening spread between Brent and WTI.

"WTI is again the odd one out today, with the spread between WTI and Brent widening to another record -- now over $20 -- but this would seem more to do with weak market conditions in the U.S. than anything," Summit Energy analyst Matt Smith had said. "Any weakness from economic data in the next few days could push prices down to the previous lows around $95, but we have seen a good deal of support enter the market at these levels."

Chinese lending fell more than expected in May, while Japan, still suffering from the impact of the earthquake, saw machinery orders fall 3.3% in April from March. A slew of critical Chinese data is to be released this week, including the Chinese Consumer Price Index measuring inflation.

"Some the data seems to suggest that their economy is slowing a little bit, but their inflation is not," says PFG Best Senior Energy Analyst Phil Flynn. "Call it stagflation, call it whatever you want, that doesn't bode very well for the price of oil."

"Any signs of weakness in China may give our dollar a little bit of a boost, psychologically." With oil being a dollar-denominated commodity, a stronger dollar against other currencies would make oil more expensive for those countries to purchase, hurting demand.

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