Crude Settles Lower After Big Swings

Crude oil futures prices ended little changed Tuesday after broad swings triggered by fresh worries over European economic problems and concerns over the next step in the ongoing talks with western power and Iran over its nuclear program.

Returning from a three-day holiday, the market struggled to find its footing, soaring to a one-week high above $92 a barrel, before finding support above $90 a barrel after the euro dropped to its lowest level since July 2010 against the dollar. Strength in the dollar saps buying interest in oil futures by investors using other currencies.

Prices were roiled by worries over Spain's economic health as the nation's retail sales fell by 9.8% year-on-year in April, and Egan-Jones, one of the smaller ratings agencies, downgraded the nation's debt to junk status. The major agencies still give Spain an investment grade rating. Oil traders are worried that a contagion effect throughout Europe would slice into global oil demand.

"The market is begging for a bounce...but the economic woes in Europe are just too big," said Tony Rosado, a broker at GA Global Markets.

U.S. oil futures, which hit a seven-month low under $90 a barrel last week on hopes of a breakthrough in Iran nuclear talks, have found nervous support near above $90 as the "tone has shifted" in the matter, said Andy Lebow, a senior vice president at Jefferies Bache LLC.

Iran repeated its past tough stance on the nuclear issue over the weekend, while U.N. nuclear officials reported indications that Iran has moved closer to possessing materials for automatic weapons. New talks are set for next month in Moscow.

Light, sweet crude oil for July delivery on the New York Mercantile Exchange settled 10 cents lower, at $90.76 a barrel. That's precisely the midpoint of settlement prices of the previous two sessions as traders puzzle out the market's next likely move. The contract hit a high of $92.21 a barrel, the most for the front month since the June contract expired a week ago.

ICE Brent crude for July settled down 43 cents at $106.68 a barrel.

Although the world oil market is "better supplied" than in other recent times, world oil-market conditions could swiftly change this summer as Iran sanctions bite into supply, potentially compelling the International Energy Agency to tap global emergency stockpiles, an IEA official said.

David Fyfe, head of the agency's oil industry and markets division, said in interview that no such moves are currently underway.

Iranian oil delivered to the market in April was 1 million barrels a day below the 2.5 million barrels a day average level for the whole of 2011, according to preliminary IEA data, as sanctions take hold, Fyfe said. But what happens in the next month or two will be crucial -- particularly if more data show that's a trend or reveal an even larger hit to Iranian supply after a European embargo of Iranian oil takes effect July 1, he said.

Weekly U.S. oil inventory data from the Energy Information Administration will be released at 11 a.m. EDT Thursday, one day later than usual, because of the Memorial Day holiday celebrated Monday.

Early forecasts call for U.S. crude stocks to drop by 400,000 barrels after rising by more than 35.4 million barrels over the past eight straight weeks. A drop of that size would still keep stocks at their highest level for this time of year in 22 years. Refiners are expected to boost operations relative to capacity by 0.6 percentage point, while gasoline stocks expected to drop by 300,000 barrels. Distillate stocks (diesel/heating oil) are expected to rise by 100,000 barrels.

June heating oil settled 2 cents lower, at $2.8088 a gallon, the lowest settlement price since Dec. 19.

June reformulated gasoline blendstock futures were 1.36 cents higher, at $2.9065 a gallon.

Both contracts expire at Thursday's settlement.


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