Oil prices pulled back today after gaining at the start of the week in the wake of supply concerns and optimism about Greece’s debt situation.
Greece secured a multi-billion bailout from the European Union and the International Monetary Fund (IMF), agreeing to slash spending by €30 billion over three years on top of numerous austerity measures that it had already implemented to bring the ballooning budget deficit under control. The debt-laden country will now receive €110 billion over 3 years to meet its commitments and avoid a default that seemed to be likely after Germany refused to provide financial aid unless Greece passed reforms to curb spending and tackle its deficit.
The news lifted the euro, which had been under pressure for weeks as Europe’s fiscal crisis unravelled. Today, however, the US dollar rose against Europe’s single currency to make dollar denominated commodities such as crude more expensive for holders of other currencies, denting demand. Investors aren't convinced that the bailout is not going to be sufficient to solve all of Greece’s problems and will only delay its insolvency.
BP's (LSE: BP) ongoing oil spill debacle in the Gulf of Mexico, where oil is on course to reach the coast of Louisiana, has triggered concerns about a possible decline in oil supplies and restrictions on offshore drilling in the US. Investors will be looking to today’s inventories data from the American Petroleum Institute (API) and Wednesday’s more closely watched report from Energy Information Administration (EIA) for more clues about the strength of oil demand.
June Brent Crude slipped to US$87.73/barrel, while US light, sweet crude for June delivery moved down to US$84.81/barrel.