Oil market in fear of double-dip recession, says think tank

LONDON, May 25 (UPI) -- World oil markets, until recently buoyed by Asian spending, are living in fear of a double-dip recession, London think tank Center for Global Energy Studies said.

The think tank, inspired behind-the-scenes by founder Sheik Zaki Yamani, Saudi Arabia's former petroleum minister, said optimism over Asian spending hadn't lasted as long as initially anticipated and oil exporters' attention had turned again to troubled Western economies, where oil demand was failing to pick up because of poor economic recovery since the 2008 downturn and subsequent events.

"A month ago the oil market was in bullish mood, focused on economic recovery and rising Asian oil demand," CGES said in its Monthly Oil Report compendium of analysis and forecasts.

On the New York Mercantile Exchange, June delivery crude oil prices tumbled overnight, falling to less than $68 per barrel -- off 21 percent from its high of the year -- with the bellwether commodity undermined by a weak euro, which fell to $1.2225 from Monday's $1.238.

"In the space of just four weeks, sentiment has reversed and the market now seems fixated on the risks of a double-dip recession," CGES said in the report, released before Tuesday's oil market trend.

A double-dip recession is defined by economists as a scenario in which the gross domestic product growth slides back to negative after a quarter or two of positive growth, leading to another recession.

Chief causes for a double-dip recession -- poor demand for goods and services, layoffs and spending cutbacks -- are all in evidence worldwide, analysts said.

Citing the latest price falls, the center said, "Both the global economy and the long-term health of the market for oil would benefit from a period of more modest oil prices."

CGES noted: "Although China continues to lead Asian countries along a path of strong growth, questions are beginning to be raised as to whether this is sustainable in the absence of a recovery in the region's main export markets in Europe and North America.

"Consumers on both sides of the Atlantic remain cautious. Disappointing employment figures from the U.S. and fears of sweeping public-sector job losses in Europe have boosted savings rates and hit retail sales."

At present, China's economic growth, and with it the country's demand for commodities, including oil, is being driven by government stimulus, CGES said.

While the Chinese government can certainly afford to continue pumping money into the economy, some high-profile hedge funds are beginning to position themselves to profit from a slump in Chinese growth.

"A slowdown in the rate of Chinese economic growth would remove at a stroke the single largest support of oil demand," said the center.