Investing.com - Crude oil traded sharply lower Wednesday, dropping to multi-month lows as concerns over soaring borrowing costs in Italy and Spain continued to dampen demand for riskier assets.
On the New York Mercantile Exchange, light sweet crude futures for delivery in July traded at USD87.91 a barrel during U.S. afternoon trade, plunging 3.19%.
Oil had briefly cut losses after the European Commission said the euro zone must move towards a banking union, consider eurobonds as well as the direct recapitalization of banks from its permanent bailout fund to regain investor confidence.
However, concerns surrounding Greece reemerged after an opinion poll showed that anti-bailout party Syriza took the lead in the June 17 election race, with 30% voter support.
The likelihood of Greece leaving the euro has been growing since early May, when anti-bailout political parties deprived pro-austerity parties of a majority at the polls.
Meanwhile, investors continued to monitor developments in Spain, where rising bond yields, the growing costs of bank rescues and a recession-hit economy fuelled fears that Madrid will be forced to seek an international bailout.
The yield on Spanish 10-year bonds climbed to 6.68% earlier Wednesday, the highest since November of last year and approaching the critical 7% threshold that preceded bailouts in Greece, Ireland and Portugal.
Late Tuesday, ratings agency Egan-Jones downgraded Spain's sovereign rating for the third time in less than a month, citing concerns over elevated government debt levels.
Jitters regarding Spain have worsened in recent sessions, after Bankia, the country’s fourth-largest lender, said last week it needed EUR19 billion in state aid to shield itself from bad loans.
Also Wednesday, Italy’s Treasury auctioned EUR5.73 billion of 5-and 10-year bonds in an auction which met with lackluster investor demand, while borrowing costs rose sharply, indicating that concerns over Spain and uncertainty over the outcome of elections in Greece next month are having a negative impact on Italy.
There are worries that the region’s sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil. The euro zone accounted for nearly 12% of global oil consumption in 2010, according to data from British Petroleum.
Oil prices came under further pressure as hopes for a large Chinese stimulus package were dashed after the official Xinhua News Agency reported Tuesday that China has no plans to “roll out another massive stimulus plan to seek high economic growth” like it did in 2008.
In 2008, policy makers unveiled a fiscal stimulus of CNY4 trillion.
China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Oil traders were looking ahead to fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of oil demand in the world’s largest oil consumer.
The American Petroleum Institute will release its inventories report later in the day, while Thursday’s government report could show crude stockpiles rose by 0.5 million barrels last week to the highest level since 1990, underscoring fears over a slowdown in oil demand from the U.S.
The report comes out a day later than usual due to the U.S. Memorial Day holiday on Monday.
The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand.
NYMEX crude prices are off almost 16% in May and have fallen nearly 19% since hitting a March 1 intraday peak of USD110.53 a barrel, as concerns lingered over a widening global economic slowdown and as tensions have eased between Iran and Western nations over the country’s nuclear program.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for July delivery fell 2.15% to trade at 104.39 a barrel, the lowest since December 20. The spread between the Brent and crude contracts stood at USD15.55.
Brent crude, the European benchmark, is nearly 18% off its intraday high of USD128.38 hit on March 1.
On the New York Mercantile Exchange, light sweet crude futures for delivery in July traded at USD87.91 a barrel during U.S. afternoon trade, plunging 3.19%.
Oil had briefly cut losses after the European Commission said the euro zone must move towards a banking union, consider eurobonds as well as the direct recapitalization of banks from its permanent bailout fund to regain investor confidence.
However, concerns surrounding Greece reemerged after an opinion poll showed that anti-bailout party Syriza took the lead in the June 17 election race, with 30% voter support.
The likelihood of Greece leaving the euro has been growing since early May, when anti-bailout political parties deprived pro-austerity parties of a majority at the polls.
Meanwhile, investors continued to monitor developments in Spain, where rising bond yields, the growing costs of bank rescues and a recession-hit economy fuelled fears that Madrid will be forced to seek an international bailout.
The yield on Spanish 10-year bonds climbed to 6.68% earlier Wednesday, the highest since November of last year and approaching the critical 7% threshold that preceded bailouts in Greece, Ireland and Portugal.
Late Tuesday, ratings agency Egan-Jones downgraded Spain's sovereign rating for the third time in less than a month, citing concerns over elevated government debt levels.
Jitters regarding Spain have worsened in recent sessions, after Bankia, the country’s fourth-largest lender, said last week it needed EUR19 billion in state aid to shield itself from bad loans.
Also Wednesday, Italy’s Treasury auctioned EUR5.73 billion of 5-and 10-year bonds in an auction which met with lackluster investor demand, while borrowing costs rose sharply, indicating that concerns over Spain and uncertainty over the outcome of elections in Greece next month are having a negative impact on Italy.
There are worries that the region’s sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil. The euro zone accounted for nearly 12% of global oil consumption in 2010, according to data from British Petroleum.
Oil prices came under further pressure as hopes for a large Chinese stimulus package were dashed after the official Xinhua News Agency reported Tuesday that China has no plans to “roll out another massive stimulus plan to seek high economic growth” like it did in 2008.
In 2008, policy makers unveiled a fiscal stimulus of CNY4 trillion.
China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Oil traders were looking ahead to fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of oil demand in the world’s largest oil consumer.
The American Petroleum Institute will release its inventories report later in the day, while Thursday’s government report could show crude stockpiles rose by 0.5 million barrels last week to the highest level since 1990, underscoring fears over a slowdown in oil demand from the U.S.
The report comes out a day later than usual due to the U.S. Memorial Day holiday on Monday.
The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand.
NYMEX crude prices are off almost 16% in May and have fallen nearly 19% since hitting a March 1 intraday peak of USD110.53 a barrel, as concerns lingered over a widening global economic slowdown and as tensions have eased between Iran and Western nations over the country’s nuclear program.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for July delivery fell 2.15% to trade at 104.39 a barrel, the lowest since December 20. The spread between the Brent and crude contracts stood at USD15.55.
Brent crude, the European benchmark, is nearly 18% off its intraday high of USD128.38 hit on March 1.