MW: Oil futures drop nearly 2% with Europe in focus
By Claudia Assis and Sara Sjolin, MarketWatch
SAN FRANCISCO (MarketWatch) — Oil futures dropped Monday as investor focus turned to a European Union summit later in the week and concerns about a tropical storm brewing in the Gulf of Mexico were cast aside.
Crude oil for August delivery CLQ2 -1.44% fell $1.35, or 1.7%, to $78.41 a barrel on the New York Mercantile Exchange, losing more ground as the session wore on.
“A glum start to the week for general markets” means oil is testing $75 a barrel — last year’s lows, said Matt Smith, an analyst with Summit Energy.
There has been a lot of emphasis on the EU summit “as we edge closer to the possible reality of the end of the euro as a currency. Risk off, crude off,” he added.
Oil prices lost more than 5% last week as fears of a slowing global economy and a surprise increase in U.S. supplies weighed on expectations of demand for crude.
The summit is one of the key market events due this week, with investors looking for signs of action to address the region’s financial crisis.
Strategists at Capital Economics said an escalation of the euro-zone crisis is the main downside risk to oil prices.
“The economic downturn is already a significant drag on energy prices, while the threat of some form of euro breakup will continue to undermine global risk appetite and should support the dollar,” the strategists said.
A stronger dollar is a negative for oil and other commodities, as it makes them more expensive to holders of other currencies. The ICE dollar index DXY +0.41% recently rose to 82.571 from 82.267 in late North American trading on Friday.
Oil traders were also monitoring the path of Tropical Storm Debby as it hovered in the Gulf of Mexico, which initially helped oil prices break $80 a barrel earlier Monday.
The National Hurricane Center reported Debby was gaining strength on Sunday, hitting the northeastern Gulf coast — a key oil-drilling area — with high winds and heavy rain.
The path of the 2012 hurricane season’s fourth named storm remained uncertain, but had Monday come to a standstill in the Gulf of Mexico. Read more on Tropical Storm Debby.
The storm has resulted in precautionary closures of oil and gas platforms, which affected about 23% of the U.S. oil and gas production in the Gulf of Mexico, analysts at Commerzbank said in a note.
“That said, it is doubtful whether this will be sufficient to trigger a trend reversal in oil prices, for these supply outages are merely temporary in nature and the supply surplus is still considerable,” the analysts said. “All that would help long term would be a cut in production by OPEC, and by Saudi Arabia in particular.”
Other energy products were mixed, with gasoline and natural gas up and heating oil posting losses. July natural gas NGN12 +3.24% rose 9 cents, or 3.4%, to $2.71 per million British thermal units, and gasoline for the same month’s delivery RBN2 +1.56% added 4 cents, or 1.7%, to $2.61 per gallon.
July heating oil HON2 -0.42% was off 1 cent, or 0.4%, to $2.52 a gallon.
Claudia Assis is a San Francisco-based reporter for MarketWatch.
Sara Sjolin is a MarketWatch reporter, based in London. Virginia Harrison in Sydney contributed to this story.
