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US, China Data Set Negative Tone for Oil Prices

Sunday, 14 Apr 2013 | 10:22 PM ET
Heat rises from stacks at the Chevron refinery in Richmond, California.
Getty Images
Heat rises from stacks at the Chevron refinery in Richmond, California.

Benchmark oil prices are set to decline further this week with U.S. Crude possibly breaking the $90 a barrel support and Brent touching $100, on recent downgrades to global oil demand forecasts.

Easing growth in China and pessimism about the U.S. recovery after a surprise 0.4 percent contraction in retail sales last month are likely to push oil prices lower, according to CNBC's latest survey.

Eight out of 13 respondents, or about 62 percent, expect prices to soften this week while the remaining five are neutral on the market. U.S. earnings - 74 S&P 500 companies report first-quarter numbers – and economic data including the Fed's survey of regional economic activity are likely set the tone for financial markets this week.

"We are somewhat disappointed that WTI failed to break through $90 but this move will be imminent," wrote Andrew Su, CEO of Compass Global Markets in a Monday note. "We have positioned ourselves for a move to $88 this week as the selling continues."

Commentators with neutral calls for the oil this week believe that the resilience in the U.S. stock markets despite the broadly softer macro-economic environment will result in markets trading sideways.

(Read More: US Oil Moves Inland, Making Storms Less Disruptive)

"Oil is caught between a general bearish backdrop for commodities and the S&P 500 posting fresh all- time highs - both pessimism and optimism," said Dhiren Sarin, chief technical strategist for Asia-Pac at Barclays.

On balance, however, neutral commentators believe markets are susceptible to further weakness even though expectations of a weaker U.S. dollar may help stabilize prices. "A small USD offer is coming back into the market which argues for a near term bounce in Brent," Sarin said. "However, we would view strength as corrective and would look to sell into such strength, ultimately looking for a return towards $100 in Brent crude."

Brent crude oil fell to a nine-month low near $101 a barrel on Friday as a broad investor sell-off in commodities triggered a fall as much as $3 a barrel but the benchmark pared losses and settled at $103.11 a barrel, down $1.16 on the day. Brent has fallen by around 13 percent since February as uncertainty about the strength of global demand has mounted.

(Read More: Oil's Tumble Gets Steeper, With Little Relief in Sight)

U.S. crude for May delivery lost $2.22 a barrel on Friday to settle at $91.29 a barrel, up from an earlier low of $90.27 a barrel. The contract closed below its 200-day moving average of $91.51 a barrel.

First quarter gross domestic product data from China showed that growth in the world's second-largest economy eased to 7.7 percent disappointing forecasts of 8 percent growth. This led to a fall in both Brent and U.S. crude to $101 and $90.20, respectively early on Monday.

"If the numbers come in as expected then we feel this will provide a measure of support to commodities," said Jonathan Barratt, editor and founder of newsletter Barratt's Bulletin before the release of the data. "However, chances are 'better' that numbers will not be as strong."

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