Oil prices tumble to their lowest levels in five weeks, as investors continued to lose faith in prospects for an early economic recovery.
Recovery fears hit shares
Regional stock markets were down Monday and oil prices dropped to their lowest levels in five weeks as investors continued to lose faith in prospects for an early economic -recovery. US crude dipped as low as US$63.75 Monday, roughly 4 per cent below its level on Thursday, when markets closed for the US Independence Day holiday. "This could be a correction from overheated expectations of an economic recovery," JBC Energy of -Vienna said in a research note. Equity markets in the oil-rich Gulf also suffered as crude prices slipped. The Dubai Financial Market (DFM), which closed down 3.6 per cent at 1756.16 on Sunday, dropped another 2.01 per cent Monday. The Abu Dhabi Securities Exchange General Index dropped 0.44 per cent Monday to end at 2,625.47, after a fall of 1.3 per cent the previous day. Elsewhere in the region, the Saudi Tadawul exchange closed 1.6 per cent lower than the day before. The Kuwaiti stock index was down 3.64 per cent, while Qatari shares ended down 1.4 per cent and the stock market in Bahrain lost 1.05 per cent. "The price of oil is a major indicator for the region," said Chahir Hosni, an equity sales manager at the Egyptian investment bank EFG-Hermes. "GCC markets are pretty well correlated with the commodity prices, especially oil, and it is visibly weighing on the equities here." Faltering equities and a strengthening US dollar have helped push commodity prices down across the board in recent days, continuing the slide triggered last week by the release of weak economic figures from the US and Europe. Stefano Vincelli, an equities and derivatives trader from Halifax Investments in Sydney, told Reuters: "Two major pieces of data will be remembered from the past week: the UK economy shrank by 2.4 per cent, the biggest contraction since 1958, and the unemployment figure from the US, which hit a 26-year high of 9.5 per cent. Overall, the supply and demand picture for crude is still a bearish number." Michael Wittner, the global head of oil research at Société Générale, said recent price support for crude, based largely on economic optimism, had faded for now. He predicted crude would continue to slide, to average about $60 per barrel this month. Crude has fallen by more than $10 in less than two weeks from an eight-month high of $73.38, after new signals that the economy in the world's biggest energy consumer was continuing to struggle. The latest drop came after a six-month -rally that saw prices more than double from $33 a barrel in late December, after falling from a record peak of $147 a year ago. The region's stock markets, meanwhile, have seen an early summer rally erode. Ali Khan, the managing director at Arqaam Capital in -Dubai, said: "We have seen some weak trading on low volumes last week and the trend is expected to continue in the short term. "All eyes are fixed on second-quarter earnings reports by UAE firms," Mr Khan said. "Investors traditionally sit on the fence before earnings season, and that also explains low volumes." Oil market volatility over the past year has reached levels comparable to the energy shocks of the late 1970s and early 1980s, according to Costanza Jacazio, an energy analyst at Barclays Capital in New York. The gyrations have had major -effects on the world economy, with last year's price leap stoking inflation and contributing to the economic crash that has reduced -global demand for all kinds of goods and assets. Crude's recent rebound has unnerved the governments of energy-consuming nations, leading EU officials to warn last month that "the 2008 bubble could be -repeated". OPEC members are just as fearful of a replay of last year's price crash, which could slash state revenues and delay investment in oil projects further. The Centre for Global Energy Studies, a London-based consulting group founded by Sheikh Ahmed Zaki Yamani, the former Saudi oil minister, said in a recent report that neither OPEC nor its key members "has any real interest in halting the rise in oil prices". * with agencies firstname.lastname@example.org email@example.com