Oil prices fall on Europe debt jittersJune 16 2012, 3:19pm
Oil prices were in decline this week with Brent crude shedding around US$2 per barrel as concerns about the euro zone debt crisis reduced demand for riskier assets. Spain and Italy saw their borrowing costs rise significantly early in the week after Spain requested a €100 billion bank bailout from the EU.
Traders were not convinced that this would be enough to resolve the country's fiscal problems and prevent it from asking for a full bailout, while it was also suggested that Italy could follow Spain and ask the EU for financial aid.
In addition, the Organization of Petroleum Exporting Countries (OPEC) decided to leave its production quotas unchanged, putting further pressure on crude.
The cartel, which pumps 40 percent of global oil, also said it would reduce production in July to make sure it does not exceed the current 30 million barrel per day limit.
Saudi Arabia has recently ramped up production to more than 10 million barrels per day to make up for the Libyan crude that was taken off the market as a result of the civil war and curb growth in oil prices.
The impact of the OPEC’s decision was partly offset by expectations of further stimulus action by central banks as this week’s US data missed expectations, fuelling speculation that the Federal Reserve could consider launching another round of quantitative easing to stimulate the recovery.
The Labor Department said on Thursday that jobless claims rose 6,000 to 386,000 last week, while the Federal Reserve said the next day that industrial production in the US fell 0.1 percent in May, while expectations were for a small increase.
The Fed also reported that its Empire State manufacturing index slumped to 2.3 this month from 17.1 in May.
It has also been speculated that the European Central Bank (ECB) is preparing to reduce its interest rate of one percent after ECB president Mario Draghi said on Friday that the bank was prepared to act to stabilise the banking sector.
His comments were made on the last day of trading ahead of this Sunday's crucial elecitons in Greece, which will determine whether the country stays in the euro zone.
Oil prices also received a little support from this week’s inventories data.
The report from the Department of Energy revealed that America’s crude stockpiles shed 191,000 barrels last week, while a Bloomberg survey forecast a gain of 1.5 million barrels.
US light, sweet crude for July delivery, currently the most actively traded contract on the New York Mercantile Exchange NYMEX), ended the week at US$84.03/barrel.
August Brent crude closed at US$97.31/barrel on the ICE Exchange on Friday.