MW: Oil below $94, set to extend drop into fourth day
By Myra P. Saefong and V. Phani Kumar, MarketWatch
SAN FRANCISCO (MarketWatch) — Crude-oil futures turned lower Monday as investors gauged demand on the back of any potential developments in Asia on news of North Korea leader Kim Jong-il’s death, and as the chief of the European Central Bank played down its role in tackling the debt crisis.
The January contract for light, sweet crude-oil futures CL2F -0.06% was down 32 cents, or 0.3%, to $93.21 a barrel on the New York Mercantile Exchange, a reversal after having earlier traded as high as $94.42.
Oil prices have already lost nearly 7% over the past three trading sessions.
Prices are being pulled in different directions on potential downgrades of euro-zone credit ratings as well as worries about the succession of power in North Korea, said Phil Flynn, vice president at PFG Best. Read more about Kim Jong-il’s death.
On Friday, Fitch Ratings warned of possible downgrades for six European countries.
In comments Monday, Mario Draghi, president of the European Central Bank, warned that struggling euro-zone countries that leave the euro bloc would still face great economic difficulties afterwards. He also sought to play down the central bank’s responsibility toward tackling the debt crisis — instead saying the region’s leaders have to take spearhead the effort. Read more on Draghi.
“Draghi of course is still showing his reluctance to an ECB bond-buying program, which many traders think is essential to keep demand for oil strong,” said Flynn. “Worries that the ECB will [err] on the side on austerity instead of growth means that the euro zone is doomed to a deeper rescission.”
Moreover, “a slowing Europe could mean a slower China and slower demand for oil,” he said in a note.
Against that backdrop, the U.S. dollar edged higher, pressuring crude oil and other commodities.
The dollar index DXY +0.21% , which measures the greenback’s moves against a basket of six major global currencies, was last at 80.263 and traded as high as 80.493, compared with 80.216 late Friday. Read about currencies action.
Turmoil potential
Meanwhile, news of Kim Jong-il’s death in state-run media contributed to losses in most Asian stock markets Monday. See more on losses in Asia Markets.
China, as the second largest global consumer of oil, “is almost as concerned with turbulence on its periphery as it is in placating its domestic population,” said Michael Fitzpatrick, editor in chief of the Kilduff Report.
“A military coup would have severe repercussions in the region, and this China does not want, particularly as their economy is faltering,” he wrote. As a result, “the situation will bear close monitoring, but China’s desire for east Asian stability will probably lead to using the full weight of their influence in keeping their ally in check.”
Rounding out action in energy futures to kick off the week before Christmas, January futures for natural gas NG12F -1.50% fell 5 cents, or 1.4%, to $3.08 per million British thermal units.
January heating oil HO2F +0.04% traded at $2.81 a gallon, up 0.5 cent, or 0.2%, and January gasoline RB2F +0.25% tacked on less than 0.5 cent, or 0.2%, to $2.29 a gallon.
Myra Saefong is a MarketWatch reporter based in San Francisco.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau. Kim Hjelmgaard in London contributed to this report.
