Commodity Corner: Oil Falls on Lower GDP Forecasts

Crude oil for May delivery fell 2.5 percent Monday to $109.92 a barrel after the International Monetary Fund (IMF) lowered its projections for real gross domestic product growth this year.


The IMF anticipates world GDP to increase by 4.4 percent this year, compared to 5.0 percent for 2010. In addition, the organization expressed concerns about high unemployment and commodity prices, along with the need to advance fiscal and financial repair and reform measures—particularly in the U.S. "To make a sizable dent in the projected medium-term deficits, broader measures such as Social Security and tax reforms will be essential," the IMF stated in regard to fiscal consolidation and entitlement reforms in the U.S.

Also in the case of the U.S. economy, the IMF lowered its GDP growth rate projection for 2011 to 2.8 percent. Earlier this year, the projection was 0.2 percentage points higher.

The IMF also noted that global demand needs to be "rebalanced." To illustrate this imbalance, it pointed out that global GDP is on course to grow by 2.4 percent this year in advanced economies and a whopping 6.5 percent in emerging and developing economies. In the case of the latter group, the organization cautioned that effects of the boom—growing production approaching capacity constraints as well as large food and energy price increases pressuring wages upward—could cause these economies to overheat.

Front-month crude traded within a range from $110.05 to $113.46 Monday. The IMF report is available here

May natural gas briefly traded below the $4.00 per thousand cubic feet mark Monday—and investors treated the dip to $3.99 as a buying opportunity. By the end of the day, natural gas had surged to $4.16 before settling at $4.11. In comparison, gas settled at $4.04 on Friday.

May gasoline slipped by six cents Monday to settle at $3.20 a gallon. It peaked at $3.27 and bottomed out $3.19.