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Oil below $76 in Europe as Greece rocks markets, weak manufacturing suggests waning demand
Oil tumbled to below $76 a barrel Tuesday as fears intensified that Greece may not be able to crawl out from beneath a mountain of debt without defaulting.
By early afternoon in Europe, benchmark crude for November delivery was down $2.14 to $75.47 per barrel in electronic trading on the New York Mercantile Exchange ' its lowest level in more than a year. Benchmark crude fell $1.59, or 2 percent, to close at $77.61 per barrel in New York on Monday. In London, Brent crude fell $1.70 to $100.01 on the ICE Futures Exchange.
Investor concerns about Greece were heightened when the debt-strapped country said over the weekend it will miss its lower budget deficit targets, even after severe cost-cutting. Despite the shortcoming, Europe pledged to loan Greece money to help pay its upcoming bills, but that failed to reassure stock and commodity markets.
Without more financial aid, Greece says it will start running out of money in two weeks. A Greek default could spread to nearby countries and possibly trigger widespread banking problems. That would hamper world energy demand as lending slows and businesses cut spending.
"We have been mired in Greece since the second or third week of July, and it has been a topic of conversation in every week or every other week since then," analysts at Cameron Hanover said in a report.
"Germany's parliament last week ratified an aid package agreed upon in July, but prices weakened as the week wore on as investors realized that last week's vote was just the beginning."
Oil fell along with broad declines on global stock markets. On Wall Street, the Dow Jones industrial average, the S&P 500 and the Nasdaq composite were each down about 2 percent. In Asia, benchmarks in Japan, Hong Kong and South Korea were also sharply down.
Meanwhile, manufacturing surveys out of China pointed to muted activity in September as prices for raw materials rose. One survey suggested manufacturing was stagnant, while another showed a slight improvement. Both were disappointments for oil analysts and traders, since China is the second largest oil consumer in the world after the U.S.
"The deterioration in global manufacturing ... supports our view that underlying demand for commodities is weakening," researchers at Capital Economics said. "We expect the prices of oil and industrial metals in particular to fall a lot further."
Reports that crude production in Libya was picking up faster than previously anticipated put supply-side pressure on oil prices.
"According to the head of Libya's national oil company, the country could well achieve output of 700,000 barrels a day by the end of the year," said a report from Commerzbank in Frankfurt.
Libya, which has Africa's largest proven reserves of conventional crude, was producing 1.6 million barrels of crude a day before the pro-democracy revolution against Moammar Gadhafi.
Expectations that U.S. stockpiles of crude and refined products grew last week also pushed down prices.
Data for the week ending Sept. 30 are expected to show builds of 2.5 million barrels in crude oil stocks and of 1.3 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration ' the market benchmark ' will be out on Wednesday.
In other Nymex trading Tuesday, heating oil fell 3.96 cents to $2.7155 per gallon. Gasoline futures fell 2.85 cents to $2.4825 a gallon. Natural gas was down 1.9 cents at $3.598 per 1,000 cubic feet.
Pamela Sampson in Bangkok contributed to this report.