This article is from the source 'bbc' and was first published or seen on . It will not be checked again for changes.

You can find the current article at its original source at http://news.bbc.co.uk/go/rss/-/1/hi/business/7542766.stm

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
Oil price falls further to $118 Stock markets rally as oil falls
(about 9 hours later)
Oil prices touched three-month lows of $118 a barrel on Tuesday amid signs of rising supplies and slowing demand. Stock markets have rallied strongly in the US and Europe on the back of the continuing fall in the price of oil.
US crude fell as low as $118 a barrel, before recovering to $119.13. Brent crude fell by $2.33 to $118.35. Oil prices touched three-month lows of $118 a barrel, nearly $30 below their recent peak, amid signs of rising supplies and slowing demand.
Prices fell on Monday after it seemed that storms in the Gulf of Mexico were unlikely to lower output. The news, allied to the Federal Reserve's decision to keep interest rates on hold, sent the benchmark Dow Jones index up nearly 3% to 11,615.77.
Some analysts have also said that slowing economic growth is set to cut demand for commodities in general, and metals prices have been falling. Markets also put on strong gains in London, Paris and Frankfurt.
Demand drop Buoyant markets
On Monday, the price of platinum hit six-month lows as falling car production hit demand for emission control devices, its largest market. The FTSE 100 index closed up 2.5% while Germany's Dax and France's Cac indices rose 2.6% and 2.4% respectively.
Meanwhile, rubber prices - the main raw material for tyres - hit two-month lows. The spike in oil prices in the early part of the summer, which saw the cost of a barrel of oil hit nearly $150, depressed many stock markets.
Copper, lead and zinc - all used in the industrial sector - have seen their prices fall in recent days with many blaming falling demand from the previously red-hot Chinese economy. But the situation has now reversed with US crude settling down $2.24 at $119.13 on Tuesday while Brent crude fell by $2.98 to settle at $117.70.
"You've got an economic slowdown and markets are slowly coming to terms with it," said Mark Konyn, chief executive of Allianz SE's RCM Asia Pacific arm. This prompted the best day's trading on the Dow Jones in four months.
"Some of the speculation that was looking for safe harbour in commodities is starting to unwind." Oil prices have fallen in the past couple of days after it seemed that storms in the Gulf of Mexico were unlikely to lower output.
Stockpiles growing But analysts have also said that slowing economic growth is set to cut demand for commodities in general.
Experts added that rising stockpiles have also pointed to falling demand for commodities, making them a less attractive prospect. Announcing its decision to keep interest rates on hold on Tuesday, the Federal Reserve said economic growth was likely to remain weak for the rest of the year and beyond.
For example US soybean futures hit their lowest level in three months as supplies were boosted by good weather and a slowdown in Chinese buying ahead of the Beijing Olympics. At the same time, it said economic activity improved in the second quarter and it believed inflationary pressures would ease in 2009.
On Monday, a Reuters survey found that supplies from oil producer group Opec had risen for the third month in a row in July. Analysts said that many investors were now focusing more on the potential imbalances between supply and demand on the oil market, and were looking at moving cash from oil and into other assets.
The increase in Opec supply was mainly due to Saudi Arabia raising its oil output.
Weak US consumer spending figures released on Monday also increased expectations that demand for fuel in the US could drop.
Analysts said that many investors were now focusing more on the potential imbalances between supply and demand on the oil market, and were looking at moving cash from oil and putting it in other assets.
"Most of the hedge funds have been taking profits," said Angus McPhail of British-based investment firm Alliance Trust."Most of the hedge funds have been taking profits," said Angus McPhail of British-based investment firm Alliance Trust.
He added that prices could fall to "about $100 within the next month if you keep on getting weak demand data".He added that prices could fall to "about $100 within the next month if you keep on getting weak demand data".