Crude Tumbles 4% on Renewed Euro-zone Fears
The oil market Monday turned away from worries about Iran and news of pipeline outages to bid down oil prices by 4% due to renewed concerns about the euro zone.
Nymex front-month oil futures on the New York Mercantile Exchange settled at $88.14, down 4.2%, while Brent crude futures traded down $3.54 at $103.29 a barrel.
The retreat came amid renewed concerns about the euro zone following headlines about ever-higher bond yields in Spain and more difficulties in Greece.
Phil Flynn, senior market analyst for the Price Futures Group, a futures-trading firm, said recent headlines raised new doubts over the euro zone's viability, pushing aside geopolitical concerns that preoccupied the oil market last week.
"Based on what we're hearing, it's amazing we're not down more," Mr. Flynn said.
Spain's economy weakened further during the second quarter, hit by a sharp drop in domestic demand and by intense volatility in financial markets, the Bank of Spain said Monday. In its monthly economic report, the central bank said preliminary estimates show that Spain's gross domestic product contracted 0.4% in the second quarter from the first, and dropped 1% in annual terms.
Analyst Matt Smith of Summit Energy said that the combination of higher Spanish bond yields with news that the "troika" would visit Greece is "setting a hugely huge negative tone to the day."
The euro-zone crisis has for months stood as an albatross on the oil market because it raises concerns about the economic growth needed for energy demand. A weaker euro relative to the dollar can also depress the price of oil, which is traded in dollars. On Monday, the dollar was stronger relative to the euro.
In ruminating about the euro-zone crisis, the market turned its eyes away from the Iran story, which dominated news last week, sending prices higher for seven days in a row.
After the recent trading, Iranian geopolitical concerns "have been priced in and some stability in the Iranian risk factor is expected," said James Ritterbusch, president of the oil-trading advisory firm Ritterbusch & Associates, in a note.
Mr. Ritterbusch said that while price lows had largely been reached, "we are also leaving open the chance of a significant price selloff that could easily negate as much as 80%-90% of this month's price advance within a 2-3 week time frame."
Trader John Kilduff of Again Capital expects oil to trade within the $82-$92 range.
IAF Advisors' Kyle Cooper said the negative sentiment about the euro could send prices back down to the mid- or upper-$70 range if it persists.
Traders also gave scant attention to news of an explosion in Turkey of a pipeline that had been carrying Iraqi oil. By Monday, the line had been partially restored, flowing 300,000 barrels a day, compared with the normal flow of 400,000-450,000 barrels.
There were also reports that the Cano-Limon pipeline in Colombia was attacked by rebels who blew up a section of the line. According to a Reuters report, the army and Colombia's state oil firm Ecopetrol SA said the 220,000-barrel-a-day pipeline was attacked Saturday by members of the Revolutionary Armed Forces of Colombia, or FARC. The line usually pumps around 80,000 barrels a day, the report said.
Front-month reformulated gasoline blendstock, or RBOB, settled at $2.883 a gallon, down 6 cents, while heating oil settled at $2.819 a gallon, down 10.54 cents.
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