Pressure point
Watch out for acts of God. As one things for sure: there's nothing like a good gust to test the strength of an over inflated market
Bullish commentators were predicting two weeks ago that oil would top $200 a barrel by 2009.
As Hurricane Gustav blew in towards platforms and refineries in the Gulf of Mexico, its modest impact on the oil price and its continuing fall suggests possible movement below $100, as I predicted here a fortnight ago.
Consumer demand for the black stuff is still waning as prices closed at their lowest level in five months on Tuesday, just above $105.
Light, sweet crude finished at $107.89 on Thursday while London Brent crude stood at $106.30, a fall of almost 30 per cent on July's peak prices of near $150.
For the central banks, and their continued efforts to hold onto the reigns of inflation, the news is welcome. But there wasn’t too much else to celebrate as fears over weakening global economies resurfaced in the markets.
Bank stocks fell sharply as the risk of owning debt rocketed after the European Central Bank declared a crackdown on abuses of its bank liquidity operations. Haven’t we heard this somewhere before?
ECB president, Jean-Claude Trichet, announced radical rule changes on Thursday. Finance groups that have become overly dependent on cheap funding from the bank will be affected most. From February 1, the cost of using asset-backed securities to obtain ECB funds will be increased and some deals where underlying mortgages or other loans are not denominated in euros will be excluded.
Analysts immediately warned of a negative affect on banks, with the UK suffering the biggest share falls. HBOS was down almost 7 per cent at 282.5p, Barclays fell 6 per cent at 336.96p and Lloyds TSB down 5.7 per cent at 288.9p. UBS of Switzerland was the worst-affected of the other European banks.
Concerns about the state of the US economy and the prospect of slower growth in the Eurozone forced US and Euro shares to fall sharply.
The Dow Jones and Nasdaq indexes fell by about 3 per cent on Thursday, while London's FTSE 100 index lost 2.5%. French and German markets each lost almost to 3%.
The slides came after new US data showed sluggish shop sales and mounting unemployment claims.
American jobless benefit claims rose for the first time in three weeks as The Dow fell 344.65 points, to 11,188.23 points - its worst fall since late June.
In London, the falls took the FTSE 100's losses over the past two sessions to 4.6% as the economic gloom deepened.
The European Central Bank cut its 2009 growth forecast from 1.5% to 1.2%.
Underlying worries about inflation and unemployment prevented central banks in the US and Europe from reducing interest rates, although there is growing confidence cuts may come by the end of the year.
All eyes will be on the Opec countries when they meet in Vienna on September 9. Several members have indicated they mean to take action to defend the US$100 a barrel level by cutting back on production, although I predict, in line with the OECD, demand will have more of a long term impact on prices than the tinkering with the supply model.
Demand from China and India, rather than OPEC’s position, represents the real shifting in the wind that warrants closer attention.
