Oil prices fall on global economic concerns
Oil fell Monday on the realisation that a short-term fix in Spain won't offer a long-term solution to Europe's debt crisis.
A multibillion-dollar bailout loan for Spain's banks generated initial enthusiasm in the global stock, bond and energy markets. But by the close in New York, the good feeling had given way to scepticism.
Benchmark oil fell $1.40 to $82.70 per barrel in New York. Brent crude, which is used to price international varieties of oil, dropped 81 cents to $98.66 per barrel in London. The broad S&P 500 stock index fell nearly one per cent.
Leaders of European countries agreed over the weekend to lend Spain up to $125 billion to help its troubled banking system. Spain is the fourth European country after Greece, Portugal and Ireland to request financial help since the debt crisis began.
Oil jumped above $86 per barrel in trading in Asia. But the relief was temporary, replaced by concern over Spain's ability to repay the money. The potential for Greece to abandon the European currency still hangs over the market, as does a deepening recession in Italy. That turmoil, as well as slowing economic growth in China and the United States (US), is reducing demand for oil, gasolene and diesel fuel.
It's not yet clear whether Europe's ongoing efforts to put the financial crisis to rest will result in an economic turnaround. "It just doesn't seem like that's very close," said Michael Lynch, president of Strategic Energy & Economic Research.
Meanwhile, oil supplies continue to build despite ongoing weak demand around the world.
US oil production topped six million barrels a day in the first quarter of 2012, which was a 14-year high, according to the Energy Information Administration. Most of the increase was the result of more production in North Dakota, Texas and the Gulf of Mexico.
Oil's decline was tempered by data showing China imported nearly six million barrels of crude a day in May. That was about 10 per cent more than April and 18 per cent more than a year earlier. China is a huge importer of oil and other commodities.
Meanwhile, motorists are continuing to see a steady decline in pump prices. The national average for gasolene fell less than a penny overnight to $3.54 per gallon, according to AAA, Wright Express and the Oil Price Information Service. That's 19 cents less than a year ago. Gas has dropped 50 cents per gallon in a little more than two months.
Natural gas dropped 8.1 cents to $2.218 per 1,000 cubic feet. The price has plunged about 50 cents in three weeks as supplies remain well above normal levels.
In other trading, heating oil fell 3.64 cents to $2.638 per gallon and gasolene dropped 2.86 cent to $2.657 per gallon.