Oil fell, extending its earlier decline, after the International Monetary Fund cut its forecasts for economic growth in the U.S. and Japan and said high oil prices pose a new risk to the global economy's expansion, Bloomberg reported.
Brent crude declined as much as 1.6 percent in London, falling from its highest price since August 2008, after a German government official commented on the IMF's report to be published today. The African Union said Libyan leader Muammar Qaddafi agreed to a cease-fire plan, fueling speculation that exports from the North African nation may recover.
"It is logical to suggest that current oil-price levels might well slow demand increases this year," said Eugen Weinberg, head of commodity research at Commerzbank AG in Frankfurt. Crude also fell "because of the peace talks in Libya, and also because the recent price increases are considered excessive. Current prices aren't justified by the supply-and-demand scenario."
Brent oil for May settlement dropped as much as $1.96 to $124.96 a barrel and was at $125.35 at 12:12 p.m. on the ICE Futures Europe exchange in London. Futures earlier rose to $127.02, the highest price since Aug. 1, 2008, after surging 6.7 percent last week. Oil for May delivery on the New York Mercantile Exchange fell as much as $1.26 to $111.53 a barrel.
Medium-term deficit reduction strategies in the U.S. and Japan lack credibility, the IMF said in its World Economic Outlook, a German official said on condition of anonymity because the report will be published in Washington later today.
Double-Dip Risk
While the likelihood of a double-dip economic slump in the world economy has decreased, risks to economic growth outweigh chances and commodity price shocks, especially oil, have emerged as a new risk to the global economy's expansion, the German official cited the IMF as saying. The IMF left its forecast for global growth unchanged, he said, without giving time-frames.
Brent crude traded at a premium of $13.48 a barrel to U.S. futures. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21 as unrest spread in the Middle East and North Africa and stockpiles climbed at Cushing, Oklahoma, the delivery point for New York futures. The spread averaged 76 cents last year.
An increase in oil prices and rising interest rates may threaten economic growth, BP Plc's chief economist said. The basket price of crude for the Organization of Petroleum Exporting Countries, representing the main export crudes of all member countries, rose above $120 a barrel today for the first time since Aug. 8, 2008.
"We know one thing from history, rising energy prices and rising interest rates are toxic for economic growth," Christof Ruehl told reporters today in Perth. "The combination is troublesome."