By Myra P. Saefong and Michael Kitchen, MarketWatch
SAN FRANCISCO (MarketWatch) — Crude-oil futures fell more than 1% Monday, hit by a surge in the dollar as worries spiked over a Cyprus bank levy and its implications for Europe.
Crude oil for April delivery CLJ3 -0.29% declined $1.25, or 1.3%, to $92.20 a barrel on the New York Mercantile Exchange, more than erasing its 42-cent gain Friday .
Similarly, London-traded rival benchmark Brent crude saw its May contract UK:LCOK3 -0.57% retreat $1.58, or 1.4%, to $108.24 a barrel on ICE Futures.
The moves followed a surprise announcement Saturday by the government of Cyprus that a levy will be imposed on private bank deposits at the nation’s lenders as part of the country’s bailout program.
“Cyprus has done a splendid job of upsetting the apple-cart of positivity this weekend by announcing a levy on bank savings,” said Matt Smith, commodity analyst at Schneider Electric in Louisville, Ky.
Cyprus has been forced into taking steps to raise capital as part of a bailout, he said in a note Monday. They announced taxing bank accounts, but given a swift backlash after the announcement on Saturday morning — which basically encouraged everyone to withdraw their money from banks — the decision on whether to implement the tax has been delayed until tomorrow, he added.
“This news brings the Euro debt crisis back to center-stage, hence the euro is being walloped to a low for the year, and crude is fully participating in the risk-off movement,” said Smith.
The announcement by Cyprus — and its possible implications for other financially strapped euro-zone nations — sent global financial markets into a frenzy, with Asian stocks and U.S. equities dropping sharply while the dollar surged.
The ICE dollar index DXY +0.56% — a measure of the greenback against six rival units — rose to 82.699, up from 82.277 in North American trade on Friday. A rising dollar tends to depress crude-oil prices, which are denominated in the U.S. currency, as it makes the commodity more expensive for holders of euros, yen and other units.
The Cyprus news “sets a precedent that could undermine confidence across Europe,” said Phil Flynn, senior market analyst at Price Futures Group, pointing out that if Cyprus can tap into your money on deposit and charge a tax on it, then why would you put money in its banks?
Other energy futures mostly tracked the selloff in crude, as April gasoline RBJ3 -0.56% gave up 3 cents for a 1.1% drop to $3.13 a gallon, while April heating oil HOJ3 -0.20% saw a 3-cent retreat, about 0.9%, to $2.91 a gallon.
April natural gas NGJ13 +1.89% went the other way, however, rallying 9 cents, or 2.3%, to $3.96 per million British thermal units. The gain extended a 6.7% advance the previous week, helped by a larger-than-expected drop in U.S. natural-gas inventories for the week ended March 8.
Citi Futures analysts said the natural-gas contract was picking up support from current North American weather patterns, particularly “what has proven to be a stable pattern of cooler-than-normal temperatures.”
“Based on the cold, our model now suggests that storage [of natural gas] could fall below the five-year average benchmark for the first time since September 2011 by the end of March,” Citi Futures said, though adding that the comparison levels were skewed by high storage levels in recent years.
Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.
Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles. You can follow him on Twitter at @KitchenNews.
