FX:Crude oil tumbles 2% as Spain bailout fears mount
Forexpros - Crude oil futures fell more than 2% during European morning trade on Monday, as mounting fears that Spain will need a full-scale sovereign debt bailout prompted investors to shun riskier assets.
Persistent worries about China's economic slowdown and the uneven recovery in the U.S. also weighed on appetite for growth-linked assets.
On the New York Mercantile Exchange, light sweet crude futures for delivery in September traded at USD89.60 a barrel during European morning trade, plunging 2.4%.
Earlier in the day, prices fell by as much as 2.5% to trade at a session low of USD89.52 a barrel.
Fears over Spain’s deteriorating fiscal health intensified Friday after the indebted state of Valencia said it would seek financial help from Madrid. More bad news emerged over the weekend when another region, Murcia, said on Sunday it would also seek government financial aid.
Spanish media reported that several others among Spain's 17 semi-autonomous regions are expected to follow, including the two biggest regions, Catalonia and Andalucia.
The yield on Spanish 10-year bonds jumped to a record-high 7.53% during early trade Monday, above the critical 7% threshold widely considered unsustainable in the long run.
Meanwhile, fears over a Greek exit from the euro zone resurfaced, as Athens requested more time to meet the conditions of its international bailout ahead of a meeting with the Troika on Tuesday.
German media reported over the weekend that the International Monetary Fund may cut off aid to Greece, making the country’s insolvency in September more likely.
Oil traders pay close attention to developments surrounding the euro zone’s debt woes, amid worries that the region’s sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil.
The news prompted investors to shun riskier assets, such as stocks and commodities, and flock to traditional safe haven assets like the dollar and U.S. Treasuries.
The euro sunk to the lowest level since June 2010 against the U.S. dollar, while the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, rose 0.35% to trade at 83.91, just below the highest level since July 2010.
Oil prices typically weaken when the U.S. currency strengthens as the dollar-priced commodity becomes more expensive for holders of other currencies.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for September delivery dropped 2.1% to trade at USD104.61 a barrel, with the spread between the Brent and crude contracts standing at USD15.01.
