Crude Slides on Euro-Zone Jitters
Crude-oil futures posted a slight loss as the market was dominated by news of the euro-zone credit crisis and its potential to squelch oil demand.
Spanish bond yields rose to alarmingly high levels, erasing hopes of any measure of stability stemming from the pro-bailout party's victory in Greek elections over the weekend.
Light, sweet crude for July delivery settled down 76 cents, or 0.9%, at $83.27 per barrel. Meanwhile, Brent futures on the ICE exchange for August delivery lost $1.56, or 1.6%, to $96.05 a barrel, a new settlement low for 2012.
After a couple of hours of optimism following the Greek results, "the focus quickly switched to Spain," said Tim Evans, an analyst with Citi Futures Perspective.
The euro zone's fourth-largest economy saw its 10-year bond rise above 7%, a mark seen as significant because it was the level breached by Greek, Portuguese and Irish bonds before they lost access to financial markets and sought bailouts.
Because the size of Spain's economy dwarfs those of those three other nations, the Iberian nation's problems raise worries that a financial disaster there could drag the whole continent into contraction. There are "fears that we might be seeing a European recession," said Gene McGillian, an analyst with Tradition Energy.
Traders have been closely following events in Europe because of concerns the worsening fiscal crisis is slowing economic growth there and elsewhere, damping demand for oil. Crude prices have fallen nearly 25% from their highs this year of $110 a barrel.
"The market is looking for a more comprehensive solution to the euro-zone sovereign debt crisis," said Andy Lipow, with Lipow Oil Associates. "They see bits and pieces of solutions but nothing as comprehensive."
Weakness in the euro also tends to weigh on oil prices, because crude, which is traded in U.S. dollars, becomes more expensive for European buyers. As of Monday at 11:50 a.m. EDT, one euro was worth $1.2569, down 0.97%. Crude prices have fallen nearly 25% from their highs this year of $110 a barrel.
Adding to the gloomy picture for oil bulls, petroleum demand in the U.S. also remains "very, very poor," while domestic production from places like North Dakota continues to rise at faster than expected levels, further adding fuel to bearish outlooks on oil prices, said Kyle Cooper, an analyst with IAF Energy Advisors in Houston.
This week, market participants are also likely to focus on the progress of talks in Moscow with Iran, which run Monday and Tuesday, over the country's nuclear program. Tensions between Iran and the West have cooled considerably in recent months, easing fears of an imminent supply disruption, although two previous rounds of talks were unsuccessful in producing a firm agreement.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.