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Oil prices sink on eurozone crisis

Jul 12 2011 13:48 AFP

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London - World oil prices sank Tuesday, extending recent losses on investor tensions over the worsening eurozone debt crisis, which could curb global appetite for energy, traders said.

The market was dented by the rising greenback, which makes dollar-priced commodities become more expensive for buyers using weaker currencies, hitting demand.

New York's main contract, West Texas Intermediate for delivery in August, slid $1.08 to $94.07 a barrel.

Brent North Sea oil for August dropped $1.89 to $115.35 in London midday deals.

Global markets slumped on Tuesday, extending Monday's fierce sell-off as concerns grew that the debt crisis was spreading to heavily indebted Italy and Spain - which are Europe's third - and fourth-largest economies respectively.

"Oil prices continued to fall both yesterday and this morning, as worries over the Italian debt situation increased," said Westhouse Securities analyst Peter Bassett.

Borrowing costs for the Italian and Spanish governments rose sharply higher on Tuesday.

And the difference between the yield on Italian and Spanish government bonds on one side and German rates on the other was also at its highest level since the creation of the eurozone - a key measure of growing investor unease.

In reaction, the European single currency tumbled to a four-month low of $1.3837 on Tuesday.

At the same time, crude futures have also been pressured this week by increasing moves by Beijing to crack down on soaring Chinese inflation, which hit three-year highs last month.

"While eurozone debt woes weighed on investors' minds, the stronger dollar put pressure on black gold as this product is traded in dollars globally, meaning any rise in the currency makes crude more expensive," said Capital Spreads analyst Simon Denham.

"And to add fuel to the fire, expectations that China's struggle with inflation could mean that demand will wither away helped the commodity to fall further."

China has in the past few months tightened its monetary policy to rein in inflation, but some analysts are concerned Beijing may go too far and trigger a sharp slowdown in the world's biggest energy consumer.

Meanwhile, the oil market was still reeling from last Friday's unexpectedly dismal jobs report in the United States, which is the world's largest oil consuming nation.

Opec held broadly steady its forecast for oil demand this year and forecast steady demand growth next year, saying on Tuesday that the strength of economic recovery was unclear.

Demand for oil this year would be 88.18 million barrels per day, an increase of 1.36 mbd from the level in 2010, Opec said, rising to 89.50 mbd in 2012.

It commented: "An unsteady world economy is negatively affecting the oil market and imposing a high range of uncertainty for the short term."

commodities  |  markets  |  oil  |  austerity measures
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