Crude oil fell sharply during the Asian session after downbeat data from U.S. yesterday showed that consumer confidence is worsening in the world’s largest economy, along with intensifying fears in Europe over Spain’s financial sector and the euro’s outlook.
Crude oil opened today’s session at $90.88 and recorded so far the lowest at $89.73 and the highest at $90.89. Oil is trading now at $89.85 and is expected to decline further as fears in Europe remain elevated.
Spain is struggling with its financial sector with a possibility that it would call for outside support. Spain may sell bonds in order to support the banks recapitalization plans despite the soaring borrowing costs, a risk that markets see is very likely to pressure Spain to ask for an international bailout repeating the scenario seen with Ireland.
The situation in Spain is unenviable and the country is suffering to reform its banking sector; issuing new bonds to do so will keep investors edgy and will likely intensify the pressure on the fiscal front as the nation struggles to lower its bubbling debt and lower its budget deficit.
All the fundamentals whether from Europe or from the world’s largest economy are negative and disappointing, putting further pressure on crude oil. The only thing that is helping the commodity is the tension over Iran’s oil supplies and if the military option remains on the table.
As we said yesterday, the relief rally vanished after worsening situation in Spain and falling consumer confidence in the States. The market was relieved with the start of the week from Greek opinion polls which showed that Greeks started to show prudence and tilting towards pro-bailout parties as they still opt to remain in the euro bloc.
China also disappointed investors today after the State Media said that Chinese authorities won’t implement aggressive stimulus to stabilize growth, where any stimulus provided by the government would be mild comparing to the one launched in late 2008.
All these factors were strong enough to disappoint investors urging them to go for safe havens led by the U.S. dollar which resumes the aggressively rally today adding downside pressure on oil and pushing it to the downside, especially ahead of key inventory data this week that will confirm weak U.S. consumption and record inventory levels.
The USDIX which tracks the dollar movements against a basket of foreign currencies opened the session today at 82.39 after yesterday’s gains, where it is currently trading around 82.66 after recording a high of 82.72 and a low of 82.38.
Nothing is immune now especially crude oil which is expected to continue its downside wave this week due to several negative factors and the lack of any encouraging news, as the deepening crisis in Europe is leaving the commodity under strong pressure forcing it to drop.
