MW: Oil futures drop as concerns over European banks weigh
By Polya Lesova , MarketWatch
FRANKFURT (MarketWatch) -- Oil futures dropped below $78 a barrel on Tuesday, as the downgrade of a major French bank and a warning about mounting losses at Spanish lenders triggered drops in European equities, souring sentiment among energy traders.
Crude oil for August delivery fell 92 cents, or 1.2%, to $77.69 a barrel in electronic trading on Globex.
The contract earlier hit an intraday low of $77.27 a barrel.
"Today, prices are trading lower, now that the initial euphoria about possible appreciation of the yuan has vanished and the weaker euro again has put pressure on oil prices," wrote analysts at Commerzbank AG in a note to clients.
Traders appeared to be shrugging off the decision by Russia's Gazprom to begin reducing gas deliveries to Belarus after the nation failed to pay its debt.
Gazprom cut supplies by 15% on Monday and then by 30% starting on Tuesday, the Associated Press reported.
"Normally, concerns about secure supply on the back of such conflicts support prices, especially as some of the oil pipelines run through these regions," the Commerzbank analysts said.
"This shows once again that the situation on the oil market is being determined mainly by the general financial market environment," they added.
The Stoxx Europe 600 index (ST:SXXP 255.53, -2.65, -1.03%) dropped 1.1% Tuesday, coming under pressure after Fitch Ratings lowered its rating on BNP Paribas (FR:BNP 48.74, -1.58, -3.14%) and Standard & Poor's said it now expected Spanish banks to suffer higher credit losses than previously estimated.
Stock futures pointed to a lower opening on Wall Street, while the U.S. dollar posted modest gains against most of its rivals, including the euro.
The dollar index (DXY 86.18, +0.25, +0.29%) , which tracks the performance of the greenback against a basket of six major currencies, rose 0.2% to 86.074.
Supply data ahead
Energy traders are also awaiting data on petroleum inventories due at 4:30 p.m. Eastern from the American Petroleum Institute. The U.S. Energy Information Administration will release its supply data at 10:30 a.m. on Wednesday.
Analysts polled by Platts expected a decline of 1.5 million barrels in crude stocks and a drop of 500,000 barrels in gasoline supplies. They also project an increase of 1.4 million barrels in distillate supplies.
Refinery utilization, or the so-called run rate, is expected to rise 0.5 percentage point to 88.4%
"With refinery runs expected to rise and the narrowing in the front of the New York Mercantile Exchange futures contracts price curve discouraging any additional stock-building, crude inventories are apt to partially offset last week's 1.7-million-barrel build," said Linda Rafield, senior oil analyst at Platts, in a statement.
