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Oil rally that began with Libya ends with Europe
Source: Agencies |
June 16, 2011, Thursday
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THE financial crisis in Europe threatens to snuff out what's left of the four-month rally in oil that began in Libya.
Riots broke out in Greece yesterday over proposed austerity measures as the government struggles with a simmering debt crisis. Moody's ratings service said it may downgrade three big French banks that face losses on Greek bonds. The warning worried investors that Greece's problems could spread to other financially troubled European countries like Spain, Portugal and Ireland.
Europe consumes about 18 percent of the world's oil, and ongoing economic troubles there could slow demand for oil.
"Things are very unsettled right now," Michael Lynch, president of Strategic Energy & Economic Research, said. Three years after the banking meltdown in the US, investors remain skittish about banks, Lynch said. "Just a whiff of a crisis, and everyone's ready to bolt."
The dollar strengthened against other currencies on concerns about Europe's economy, with the euro losing 2 percent against the dollar. Oil tends to fall as the dollar rises because oil is priced in dollars and becomes more expensive for investors holding foreign currencies as the dollar gets stronger.
Benchmark West Texas Intermediate crude plunged US$4.56, or 4.6 percent, yesterday to settle at US$94.81 per barrel on the New York Mercantile Exchange. That's the lowest level since late February.
Brent crude, which is used to price many international oil varieties, dropped US$6.34, or 5.3 percent, to settle at US$113.01 per barrel on the ICE Futures exchange.
Oil began a steady rise in February from about US$84 a barrel, when unrest swept through Libya and shut down its 1.5 million barrels of daily oil exports, which is less than 2 percent of the world's crude. It continued to climb as anti-government protests broke out in other countries in the oil-rich region and concerns grew that shipments from the biggest oil producer in the world, Saudi Arabia, could be disrupted.
Oil hit a three-month high of US$113.90 in early May and then headed down as experts warned high energy costs were slowing the global economic recovery. Gasoline demand in the US fell as pump prices hit US$4 a gallon (US$1.05 a liter) or more in a number of states.
Concerns about Europe's economy rippled through Wall Street yesterday. Stock markets in the US gave back all of the gains they made Tuesday - and then some. The Dow Jones Industrial Average tumbled 179 points, or 1.5 percent. The Standard and Poor's 500 and the Nasdaq dropped as well.
Oil fell yesterday despite the Energy Information Administration's report that crude supplies in the US shrank more than expected last week while wholesale gasoline demand increased. The EIA report showed that crude supplies fell by 3.4 million barrels. Analysts expected a decline of 1.9 million barrels. Most of the drop came from inventories in the Midwest, where a major pipeline was shut down temporarily due to leaks.
The EIA said gasoline supplies increased last week, though much less than analysts expected. Gasoline demand increased slightly last week as well, but independent analyst Jim Ritterbusch said the US continues to sit on a comfortable supply and relatively high pump prices should limit drivers' trips to the gas station.
"I just don't see demand improving for gasoline this summer on a sustained basis," Ritterbusch said.
In other Nymex trading for July contracts, heating oil fell 14.1 cents, or 4.5 percent, to settle at US$2.9848 per gallon and gasoline futures lost 14.11 cents, or 4.6 percent, to settle at US$2.9235 per gallon. Natural gas fell less than a penny to settle at US$4.577 per 1,000 cubic feet.
Riots broke out in Greece yesterday over proposed austerity measures as the government struggles with a simmering debt crisis. Moody's ratings service said it may downgrade three big French banks that face losses on Greek bonds. The warning worried investors that Greece's problems could spread to other financially troubled European countries like Spain, Portugal and Ireland.
Europe consumes about 18 percent of the world's oil, and ongoing economic troubles there could slow demand for oil.
"Things are very unsettled right now," Michael Lynch, president of Strategic Energy & Economic Research, said. Three years after the banking meltdown in the US, investors remain skittish about banks, Lynch said. "Just a whiff of a crisis, and everyone's ready to bolt."
The dollar strengthened against other currencies on concerns about Europe's economy, with the euro losing 2 percent against the dollar. Oil tends to fall as the dollar rises because oil is priced in dollars and becomes more expensive for investors holding foreign currencies as the dollar gets stronger.
Benchmark West Texas Intermediate crude plunged US$4.56, or 4.6 percent, yesterday to settle at US$94.81 per barrel on the New York Mercantile Exchange. That's the lowest level since late February.
Brent crude, which is used to price many international oil varieties, dropped US$6.34, or 5.3 percent, to settle at US$113.01 per barrel on the ICE Futures exchange.
Oil began a steady rise in February from about US$84 a barrel, when unrest swept through Libya and shut down its 1.5 million barrels of daily oil exports, which is less than 2 percent of the world's crude. It continued to climb as anti-government protests broke out in other countries in the oil-rich region and concerns grew that shipments from the biggest oil producer in the world, Saudi Arabia, could be disrupted.
Oil hit a three-month high of US$113.90 in early May and then headed down as experts warned high energy costs were slowing the global economic recovery. Gasoline demand in the US fell as pump prices hit US$4 a gallon (US$1.05 a liter) or more in a number of states.
Concerns about Europe's economy rippled through Wall Street yesterday. Stock markets in the US gave back all of the gains they made Tuesday - and then some. The Dow Jones Industrial Average tumbled 179 points, or 1.5 percent. The Standard and Poor's 500 and the Nasdaq dropped as well.
Oil fell yesterday despite the Energy Information Administration's report that crude supplies in the US shrank more than expected last week while wholesale gasoline demand increased. The EIA report showed that crude supplies fell by 3.4 million barrels. Analysts expected a decline of 1.9 million barrels. Most of the drop came from inventories in the Midwest, where a major pipeline was shut down temporarily due to leaks.
The EIA said gasoline supplies increased last week, though much less than analysts expected. Gasoline demand increased slightly last week as well, but independent analyst Jim Ritterbusch said the US continues to sit on a comfortable supply and relatively high pump prices should limit drivers' trips to the gas station.
"I just don't see demand improving for gasoline this summer on a sustained basis," Ritterbusch said.
In other Nymex trading for July contracts, heating oil fell 14.1 cents, or 4.5 percent, to settle at US$2.9848 per gallon and gasoline futures lost 14.11 cents, or 4.6 percent, to settle at US$2.9235 per gallon. Natural gas fell less than a penny to settle at US$4.577 per 1,000 cubic feet.
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