Oil falls sharply on Greece's downgrade

09:51, June 14, 2011      

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U.S. crude oil price fell sharply on Monday as Standard & Poor's downgraded Greece's credit rating by three notches, causing worries about global economic recovery and oil demand.

S&P lowered Greece's long-term sovereign credit rating to CCC, just four steps away from default, from B. The outlook on the long- term rating remained negative, meaning a possibility to cut ratings in the next 12 to 18 months. This caused risk aversion across the crude market.

And concerns over the output increase of Saudi Arabia continued to weigh on the markets. The largest oil exporter of OPEC planned to increase its oil supplies to 10 million barrels per day.

The spread between U.S. crude benchmark and Brent crude extended to a record high of 21.8 dollars. Analysts said that U.S. benchmark was more local and based on the domestic demand and supply, while Brent crude was more international and moved after the worldwide supply-demand relation, which was much tighter.

Currently, U.S. oil demand is getting softer while supplies are rich at Cushing, Oklahoma. But internationally, the oil demand from emerging markets is much stronger and tension in the Middle East brings uncertainties to oil supplies.

Light, sweet crude for July delivery fell 1.99 dollars, or 2.0 percent to settle at 97.30 dollars a barrel on the New York Mercantile Exchange. But in London, Brent crude for July delivery gained 32 cents, or 0.27 percent, to settle at 119.10 dollars a barrel.

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