Oil slips on weak global economies

Mon Oct 1, 2012 6:46am EDT
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By Ramya Venugopal and Dmitry Zhdannikov

LONDON (Reuters) - Brent crude fell below $112 per barrel on Monday, reflecting investor concerns that a shaky global economy may hurt oil demand following fresh signs of weakness in China and Japan and evidence of a new recession in the debt-saddled euro zone.

The drop comes after the crude benchmark closed out the third quarter with its biggest three-month gain in 1-1/2 years, buoyed by supply risks in the Middle East and efforts among global central banks to stimulate flagging economies.

But manufacturing data out of China that offered more evidence of a seventh straight quarter of slowing economic growth in the world's No. 2 oil user put demand prospects back in doubt. A survey in Japan also pointed to a worsening mood among businessmen, adding to the sour tone.

And in the euro zone manufacturing suffered the worst quarter for three years in the three months to September, pointing to a new recession.

"A visitor from another planet could be forgiven for thinking that the world is a happy place based on the financial results of the third quarter," said Tamas Varga from PVM brokerage.

"There's been a dramatic recovery from the pessimism in May - not particularly understandable when the euro zone's problems are far from over... Currently hopes rather than facts are what the bulls have hung their hats on," he added.

Front month Brent futures traded 55 cents down to $111.85 per barrel by 1018 GMT, while U.S. crude futures dropped 39 cents to $91.80.

Brent gained 14.9 percent in the third quarter, following a steep drop of 20 percent in the second quarter, while U.S. crude rose 8.5 percent in the quarter after slumping 17.5 percent in April-June.   Continued...

A gas pump is seen hanging from the ceiling at a petrol station in Seoul June 27, 2011. South Korea, as a member of the 28-nation IEA, will release 3.46 million barrels oil stocks over 30 days after a meeting with local refiners later on Monday. REUTERS/Jo Yong-Hak