Oil down as debt crisis, weak demand weigh

08:29, May 06, 2010      

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Energy commodities experienced a second day of heavy sell-off on Wednesday as hovering sovereign debt concerns and bearish inventory data cooled the sentiment.

Light, sweet crude for June delivery plunged 2.77 dollars to 79. 97 dollars a barrel, first time since March 12, on the New York Mercantile Exchange. Futures dropped to as low as 79.15 dollars a barrel during trading.

In London, Brent crude for June delivery fell 3.06 dollars to settle at 82.61 dollars a barrel on the ICE Futures Exchange.

Oil prices tumbled about four percent, largest one-day drop since early February, on Tuesday as worries resurfaced that the sovereign debt crisis in Greece may spread to other euro zone countries.

The above worries continued to rule the market on Wednesday. On Wednesday, Finland's finance minister said there is a risk Greece' s financial problems could spread to Spain or Portugal, while a senior member of Germany's ruling party said concerns remain that an international aid package for Greece could fail.

The euro fell to the lowest level against the dollar since April 2009. The single currency is down around 5 cents against the dollar since Friday. A strengthening green back usually limits market's appetite for riskier assets like energy commodities.

Meanwhile, another large buildup in oil inventories exacerbated investors' concern that energy demand is till weak.

The U.S. Energy Department Energy Information Administration reported on Wednesday that the U.S. commercial crude inventory rose by 2.8 million barrels last week, nearly double the 1.54 million barrels analysts estimated. The gain in crude oil stockpiles left supplies 5.4 percent higher than the five-year average for the period.

Imports of crude oil climbed 2.8 percent to 9.95 million barrels a day, the highest level since the week ended on July 24. Fuel imports surged 9.9 percent to 3.1 million barrels a day, the highest level since the week ended on Feb. 5.

Moreover, gasoline stocks increased by 1.2 million barrels, and distillates that include heating oil and diesel gained 600,000 barrels, both exceeding forecasts. Oil inventories have risen for 13 of the last 14 weeks, signaling to traders that energy demand is still weak.



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