Crude slips to new lows on eurozone debt woes, downbeat US data

18 May 2012 09:53  [Source: ICIS news]

By James Dennis

SINGAPORE (ICIS)--Crude futures remained under downward pressure on Friday with ICE Brent futures falling by more than $1/bbl at one stage, undermined by weak US economic data, and heightened eurozone debt worries after the ratings downgrade of Spanish banks and growing fears that Greece will exit the single-currency region.

At 8:11 GMT, July Brent crude on London’s ICE futures exchange was trading at $106.93/bbl, down by 58 cents/bbl from the previous close. Earlier, the North Sea benchmark fell to a session low of $106.40bbl, down by $1.09/bbl.

June NYMEX light sweet crude futures (WTI) were trading at $92.54/bbl, down by 2 cents/bbl on the previous close. Earlier, the US benchmark declined to a session low of $91.60/bbl, down by 96 cents/bbl.

ICE Brent futures were trading at their lowest level since December 2011, while, Nymex WTI crude futures dipped to values last seen in November 2011.

Friday’s crude price decline follows on from losses made the previous day, particularly for ICE Brent that were triggered by a worsening of the eurozone debt crisis.

Ratings agency Moody’s cut its ratings for 16 Spanish banks amid concerns over recessionary pressures in Spain, particularly with regards the country’s real estate crisis and high level of unemployment.

Earlier this week, Spain raised €2.5bn ($3.2bn) via bond offerings. However, the nation had to pay a much higher interest rates, with bonds maturing in 2016 attracting rates of more than 5%, indicating concerns among investors over the health of the Spanish economy and its ability of to repay its debts.

Fitch Ratings also further downgraded Greece amid concerns that the deeply indebted nation could exit the eurozone. The nation is set to call a new election on 17 June after attempts to form a coalition government following the recent election failed. 

Other eurozone members have expressed hopes that Greek voters will elect pro-bailout parties. There are concerns that a Greek exit from the euro area would lead to the nation’s bankruptcy and trigger a global economic crisis.

Meanwhile, economic data from the US revealed an unexpected contraction in manufacturing sector in the Philadelphia region. US unemployment figures for the previous week were also unchanged.

Asian equity markets also fell sharply on concerns over the eurozone and the global economy. The Nikkei 225 stock index in Japan was down 2.99% at 8,611.31 on Friday.

The price differential or spread between ICE Brent and NYMEX WTI futures narrowed to around $14/bbl from levels of around $17/bbl earlier in the week, indicating a strengthening of the US crude against the North Sea benchmark.

The rise in WTI values was attributed to expectations that the build-up of oil stocks in the US midwest can be alleviated with the reversal of flow on the Seaway pipeline, linking the Cushing Oklahoma terminal and the Gulf of Mexico, that will start this weekend.

Initial flow rates along the Seaway pipeline will be around 150,000 bbl/day, and will rise to 400,000 bbl/day by 2013, according to the operator Enterprise Products and Enbridge.

There were expectations that the move will reduce US crude imports from the North Sea and West Africa as Gulf and East Coast US refineries switch back to using more US crude, thus pushing WTI prices higher relative to values for Brent.

According to recent weekly data from the US Energy Information Administration (EIA), there was a record high of 45m bbls of crude stored in tanks at Cushing in the week ended 11 May, some 12% higher than a year earlier. Volumes at Cushing have been boosted by increased oil production in Texas and North Dakota.

($1 = €0.79)

By: James Dennis
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