Strong dollar, expected inventory increase sink oil

08:44, May 05, 2010      

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Mounting worries about spreading European debt crisis on Tuesday dampened market enthusiasm for recovery and sent energy commodities diving.

Light, sweet crude for June delivery plunged 3.45 U.S. dollars, or 4 percent, to 82.74 dollars a barrel on the New York Mercantile Exchange.

It is the biggest one-day drop in three months since oil dropped 4.99 percent in early February. Sovereign debt crisis in the euro zone has been weighing on the market since end of last year. Yet a fresh round of concerns deeply hurt investors' sentiment on Tuesday.

Investors are worried that the 110-billion-euro rescue package from the European Union and the International Monetary Fund to Greece may not be enough to prevent the crisis in other euro zone countries. Also the package still needs approval in Germany, which added to the uncertainty.

The euro tumbled to a one-year low against the dollar. A strengthening green back usually limits market's appetite for riskier assets like energy commodities.

Equity markets plunged around the world. U.S. stocks slumped across the board on Tuesday, with major indexes all losing more than two percent.

Another buildup in the crude inventory also pressured on the energy commodities. U.S. commercial crude stockpiles would increase by 1.6 million barrels last week, based on Wall Street analysts' average forecasts.

Crude futures in New York trading opened higher on Tuesday on upbeat economic data. Futures rose to 87.15 dollars a barrel in early trading, the highest front-month price since October, 2008.

The Commerce Department said orders to U.S. factories rose 1.3 percent in March. Analysts expected a drop. The National Association of Realtors said its index of sales agreements for previously occupied homes rose a stronger-than-expected 5.3 percent in March.

In London, Brent crude for June delivery fell 3.45 dollars to 85.49 dollars a barrel on the ICE Futures Exchange.



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