Fears over Spain, scaled back China stimulus hopes weigh futures
By Myra P. Saefong and V. Phani Kumar, MarketWatch
SAN FRANCISCO (MarketWatch) — Crude-oil futures dropped below $88 a barrel Wednesday as concerns over Spain and scaled-back expectations for Chinese economic stimulus helped lift the U.S. dollar, fueling losses among most commodities.
“It’s a continuation of the justified concerns about the dire state of the health of the European economy, which when coupled with outlooks such as my own that markets were relatively well supplied, eventually had to filter through into lower prices,” said Matthew Parry, a senior oil-market analyst at the International Energy Agency.
The July contract for light, sweet crude-oil futures CLN2 -3.15% fell $2.91, or 3.2%, to $87.85 a barrel on the New York Mercantile Exchange after touching a low of $87.49. A close below $88 would be the lowest since October.
The drop came as the ICE dollar index DXY +0.38% , which measures the greenback against a basket of six global currency counterparts, rose to 82.861 from 82.468 in North American trade Tuesday. It’s trading at its highest level in nearly two years.
The euro EURUSD -0.81% , meanwhile, fell to $1.2402 from $1.2493 late Tuesday. Read more on currencies.
Investors were generally pulling out of risk assets as lingering concerns about Spain’s finances stoked fears about the euro zone. The country saw bond yields surge after Egan-Jones Ratings Co., on Tuesday after the European markets closed, downgraded Spain to B from BB- with a negative outlook, pushing Spanish debt further into junk status.
The Spanish downgrade “reminds everyone that the European problems are about far more than Greece,” said Parry.
U.S. and European stocks traded sharply lower, with the Dow Jones Industrial Average DJIA -1.20% losing more than 128 points as Spain’s bond yields climbed and data on U.S. pending-home sales showed a decline for April. Read more on U.S. stock action.
Asian markets mostly declined as some expectations for action from Beijing were scaled back after state-run media reported Tuesday that Chinese authorities won’t resort to aggressive stimulus to stabilize growth. Read Asia Markets.
State media also cited several senior Chinese economists as saying any stimulus the government provided would be mild compared with the one launched in late 2008. Read more about the economists’ comments.
Elsewhere in the energy complex, June gasoline prices RBM2 -1.89% lost 6 cents, or 1.9%, to $2.85 per gallon, and heating oil for delivery in the same month HOM2 -2.35% slipped 7 cents, or 2.4%, to $2.74 per gallon.
The American Petroleum Institute will release its weekly data on petroleum supplies later Wednesday, a day late due to Monday’s Memorial Day holiday, and the U.S. Energy Information Administration will release its data Thursday at 11 a.m. Eastern.
Analysts polled by Platts expect that supplies of crude oil climbed by 100,000 barrels for the week ended May 25. They also forecast unchanged inventories of gasoline and a rise of 150,000 barrels in distillate stocks.
Rounding out action in the energy markets Wednesday, July natural-gas futures NGN12 -2.78% , on its first full day as a front-month contract, gave up 7 cents, or 2.7% to $2.42 per million British thermal units.
Myra Saefong is a MarketWatch reporter based in San Francisco.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau. Sara Sjolin in London contributed to this report.
