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Oil Prices Plunge amid Slow Global Economic Growth

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Oil Prices Plunge amid Slow Global Economic Growth

Oil traded near US$79 a barrel Friday in Asia, rising slightly after signs of slowing global economic growth triggered a sharp plunge in the oil price this week.

Benchmark oil for August delivery was up 51 cents to $78.71 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $3.25 to settle at $78.20, the lowest since October, in New York on Thursday.

Crude oil fell from USD 84 earlier this week and has plummeted 26% in less than two months as the global economy, led by the Eurozone, do not show any signs of economic recovery that would increase the demand for crude oil.

“Until a permanent solution is found to the eurozone’s problems, the global economy is likely to muddle through this crisis for a considerable while, and persistent bouts of risk aversion are likely to haunt the oil markets, making any sustained upside difficult,” said analysts at Barclays Bank in London.

Oil consumption in the world’s two largest economies, US and China, is winding down; along which industrial production is slowing as well.

Europe’s debt and economic woes are unlikely to be solved soon. The formation of a new Greek government this week briefly boosted investor optimism, but doubts about other debt-ridden European countries such as Spain and Italy continue to weigh on markets.

“Currently, all indicators point to continued sliding prices: sentiment on the financial markets remains very gloomy, economic growth is set to slow even further, the U.S. dollar is still showing strength and no rapid solution to the ‘euro crisis’ is in sight,” said a report from Commerzbank in Frankfurt. “Nonetheless, we believe that the fundamental supply/demand situation is in a better state than market prices would suggest and that commodities will reach a price bottom by the late summer at the latest.”


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