MOSCOW: Oil prices dropped below $77 a barrel Tuesday amid waning euphoria over China’s decision to let the yuan appreciate and as investors considered whether the global economy is strong enough to justify a four-week rally.
Benchmark crude for July delivery was down 99 cents to $76.83 a barrel Tuesday morning in London in electronic trading on the New York Mercantile Exchange. The contract gained 64 cents to settle at $77.82 on Monday.
"Prices are trading lower, now that the initial euphoria about possible appreciation of the yuan has vanished and the weaker euro again has put pressure on oil prices," Commerzbank said in a morning note.
European stocks were declining Tuesday morning as Britain’s FTSE 100 was down 1.3 percent. The Dow Jones industrial average was expected to open 0.08 percent lower. The euro traded down 0.4 percent at $1.2261.
Oil has jumped from $64 a barrel on May 25 on optimism Europe’s debt crisis won’t stymie the global economic recovery.
Goldman Sachs cut its crude forecasts, but still expects prices to rise this year as the global economy grows an estimated 4.9 percent in 2010.
Goldman now expects prices to rise to $87 a barrel in three months, down from last month’s forecast of $96.
Prices advanced to as high as $78.92 a barrel Monday on investor expectations China’s move over the weekend to strengthen its currency would boost crude demand.
Societe Generale said it expects the yuan to gain between 3 percent and 5 percent by the end of the year, not enough to spark significant new consumption in China.
"Chinese demand has already exceeded expectations; it has been strong and we had already forecast it to continue that way," the firm said in a report. "We simply do not expect a modest appreciation in the yuan to make any appreciable difference in demand.
Societe Generale forecasts crude will average $80 a barrel in the third quarter and $85 in the fourth.
In other Nymex trading, heating oil fell 2.29 cents to $2.1230 a gallon, gasoline dropped 0.15 cent to 2.1276 a gallon and natural gas was down 8.4 cents at $4.789 per 1,000 cubic feet.
Brent crude was down 94 cents at $77.88 on the ICE futures exchange.