Oil prices are set to soften further this week after data showed a slowdown in business activity from Europe to the U.S. and China reflecting continued deterioration in the global economy, according to CNBC's weekly survey of oil market sentiment. Middle East tensions and the U.S. hurricane season may limit the declines.
Overall, weaker energy prices are being viewed as a 'tax cut' and a form of stimulus for consumers, some economists say, as gasoline prices dip below $3.00 a gallon in some U.S. states.
Lower commodity prices are a "silver lining" keeping inflation tame and offering central banks room to ease policy, said Dominic Rossi, Global CIO, Equities at Fidelity Worldwide Investment told 'Squawk Box' on Wednesday.
Lower prices at the pump may provide a boost for demand this summer driving season in the U.S. though it's doubtful it'll be enough to have a lasting impact on prices when macro-economic concerns continue to weigh.
"Forecast of future demand is driving the market and a perfect storm of a U.S. slow down, European crisis, and Chinese hard landing is brewing causing market participants to finally fear downside risk in crude prices," said Kirk Howell, Chief Operating Officer of SunGard's Kiodex, who has a 'bearish' view in the short term.
"Crude has dropped 25 percent since late April so it is possible we are oversold in the short-term but risk to the downside remains. Analysts and participants have finally started to notice China may have serious issues. Consistent information is increasingly difficult to obtain but signs continue to point to a potential hard landing," Howell added.
The start of hurricane season in the U.S. could provide a short-term lift to prices though traders say there are ample stockpiles to compensate for shut-ins in the Gulf of Mexico.
Tropical Storm Debby formed in the central Gulf of Mexico on Saturday and was expected to strengthen into a hurricane as it skirted the Louisiana coast and took aim at Texas, Reuters reported, citing the U.S. National Hurricane Center.
Debby covered much of the eastern Gulf and was centered about 215 miles (346 km) south-southeast of the mouth of the Mississippi River.
The storm had top winds of 50 miles per hour (81 km per hour) and was expected to strengthen into a hurricane by Tuesday night.
Oil and gas producers evacuated workers from oil and gas platforms and shut in production on Saturday as the weather worsened in the Gulf of Mexico, which is home to 20 percent of U.S. oil production and 6 percent of natural gas output.
Benchmark London Brent crude (Intercontinental Exchange Europe: LCOCV1) prices gained 2 percent on Friday on the hurricane fears but posted a 6.79 per cent loss for the week, its biggest since the week to June 1. Brent sank to an 18-month low during the week while U.S. light, sweet crude (New York Mercantile Exchange: CLCV1) hit their lowest in nearly eight months. Last week's survey correctly predicted that U.S. crude futures would fall below $80 a barrel.
This week, exactly sixty percent, or six out of the ten respondents in the sample group, expect prices to fall while two believe prices will rise and two say they will remain unchanged.
"Certainly, oil is oversold," said Tom Weber, Senior Commodity Advisor at Los Angeles-based Portfolio Managers, Inc. "However, with the breach and close below $80, we'll look for continued downward movement towards $68. Europe does remain the negative overlay along with a global aggregate lack of growth."
By CNBC's Sri Jegarajah
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