Oil prices drop 2 percent
By Cezary Podkul,
A key benchmark of U.S. crude oil prices slid close to its lowest level in a month after a Greek debt downgrade sent jitters through an already nervous commodity market.
The benchmark West Texas Intermediate crude fell 2 percent to $97.30 per barrel in late Monday futures trading on the New York Mercantile Exchange. That’s down nearly 15 percent since it reached a six-month high of $113.93 in late April.
The retreat could spell relief to consumers who have been paying higher prices at the pump as a result of the recent spike. That, in turn, could boost the nation’s fragile economic recovery, which was already struggling when the Texas benchmark began its upward climb in mid-February.
“It’s like somebody is already down [and] they get kicked,” said Fadel Gheit, an oil analyst with investment bank Oppenheimer & Co. in New York. “The kick did not bring them down . . . but it hurt them even more.”
Phil Flynn, an oil analyst at brokerage house PFG Best Research in Chicago, ascribed Monday’s slide to a combination of global factors such as weaker-than-expected economic data from China and the ongoing concern over the fallout from Greece’s debt crisis.
“What it reflected today is that there is still concern over the global economy,” Flynn said.
But Adam Sieminski, chief energy economist at Deutsche Bank in Washington, believes the Texas benchmark is sliding lower because there’s just too much oil building up in Cushing, Okla., where West Texas crude is delivered each month.
“Cushing is like a big bathtub with the faucet turned on and the drain shot,” Sieminski said. “So crude is building up in Cushing and it’s depressing prices.”
Supply is also the reason Sieminski sees a rise in another key oil benchmark, Britains’s Brent Crude. Brent crude for July delivery edged up to $119.10, placing it near the highest level in nearly a month. The falloff of oil delivery from Libya, which Sieminski estimated at 1.4 million barrels a day, coupled with a 200,000 barrel-a-day disruption at one of Shell’s Nigerian operations, is squeezing supply to European refiners and driving the Brent higher.
The result is that the two oil benchmarks are now nearly $22 apart — a reflection of the differing demand and supply dynamics in the United States and Europe. They may still edge higher if supplies keep building up in the United States and geopolitical events keep rattling Europe, Sieminski said.
Markets have paid particularly close attention to Greece’s debt crisis, which worsened after a major credit ratings agency lowered its outlook on Greek debt. Greece is now the lowest-rated sovereign borrower at ratings agency Standard & Poor’s, which said Monday that Greece is likely to default on its debt even in the event of a restructuring of its obligations.
But markets in the United States mostly brushed off the downgrade, with the Dow Jones Industrial Average just about breaking even in Monday’s trading. The S&P 500, a broader basket of U.S. stocks, edged .07 percent higher while the tech-heavy Nasdaq slid .15 percent.