Oil futures finished nearly unchanged Monday as news of a possible downgrade of several euro-zone nations chilled a rally that earlier had sent prices surging to a two-week high.
Light, sweet crude for January delivery settled up 3 cents, to $100.99 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded down 49 cents, or 0.5%, to $109.45 a barrel.
Nymex crude hit an intraday high of $102.44 a barrel, its highest trade since Nov. 17, but lost its momentum late in the trading day after a report that Standard & Poor's was set to warn six triple-A-rated countries in the euro zone about a possible downgrade. The Financial Times reported that it was set to announce on Monday that Germany, France, the Netherlands, Austria, Finland, and Luxembourg could have their top ratings downgraded within 90 days.
The news rocked markets across the board, curbing commodities and equities and vaulting the dollar out of its earlier lows. A strengthening dollar typically weakens dollar-denominated commodities like crude by making them more expensive for foreign currency holders.
"This down-move really accelerated after this S&P story came out," said Pete Donovan, vice president at the oil options brokerage Vantage Trading in New York.
The report stated that the six countries were to be placed on "creditwatch negative" and could see their ratings downgraded due to the deepening economic and political crisis in the currency zone.
Until the afternoon pull-back, crude futures had spent the entire session in positive territory, largely on optimism signs that Europe was nearing a resolution of its debt crisis. During a closely watched meeting Monday, French President Nicolas Sarkozy and German Chancellor Angela Merkel said they would take steps to rewrite European Union treaties to firm up financial discipline in the currency bloc.
The proposal is expected to be discussed at a meeting of EU leaders in Brussels Thursday and Friday. Oil market participants hope that meeting will result in a plan to avoid disorderly defaults of the euro-zone's most vulnerable members, such as Greece, and save the currency-zone from collapse.
Crude markets have been buffeted for months by Europe's debt crisis, as traders worry that the crisis will worsen or spread to countries outside the euro zone, undermining economic growth and oil demand globally.
Crude's rapid turnaround following the S&P report underscores how vulnerable the market has become to the latest developments out of Europe, said Darin Newsom, analyst at Telvent DTN. He said he was skeptical about the long-term impact.
"We hear all the time--this debt's going to be downgraded, that debt's going to be downgraded," he said. "That headline appears so often these days. It'll be interesting to see what actually happens."
Geopolitical concerns, meanwhile, have also been roiling the crude market. Last week, the EU tightened existing sanctions against Iran and is now reportedly considering a full-blown Iranian oil embargo. It also imposed sanctions on Syrian crude exports due to its crackdown against anti-government protesters, although that country exports much less oil.
Front-month January reformulated gasoline blendstock, or RBOB, settled down 0.25 cent, or 0.1%, to $2.6137 a gallon. January heating oil settled up 0.24 cent, or 0.1%, to $2.9924 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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