Oil drops near $68 on tighter financial regulation in US, German ban
SINGAPORE: US crude dropped near $68 after falling to a seven-month low on Wednesday, extending losses for the third session this week, as Cushing stockpiles scaled a new high while concerns over tighter financial regulation in the U.S. and Europe hit global equities and most commodities.
Germany's move to ban naked short-selling in shares of ten key financial institutions and new rules from the U.S. Securities and Exchange Commission and stock exchanges to curb trading when markets plunge increased uncertainty in the financial markets, dampening investor appetite for riskier assets.
U.S. crude for June delivery fell as low as $67.90, its lowest intraday level since Sept. 30, 2009. The contract was down $1.29 at $68.12 a barrel. London Brent crude was down 84 cents at $73.59 a barrel after hitting a three-month low. Brent crude fell as low as $73.21, down $1.22 a barrel, its lowest since $72.55 hit on Feb. 16.
The fall in oil prices was purely based on economic concerns in Europe, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney. Investors moved into safe havens such as the dollar and the yen on fears tighter financial regulation would derail the global economic recovery.
The euro fell to a fresh four-year low on Wednesday while the dollar index, which tracks the U.S. unit's performance against a basket of major currencies, rose to a 14-month high of 87.458 before slipping back to 87.179. A stronger dollar makes oil more expensive for holders of many other currencies. "The (oil) market is getting too far ahead of itself," Barratt said. "The current financial issues will be looked at and solved and we'll get back to solid fundamentals which suggest growth."
However, the overall U.S. crude stockpiles fell unexpectedly last week while gasoline stocks rose. "Refinery rates are high again. Crude oil stocks have to be bought so that they can refine it," Barratt said. "It's gasoline season; we're getting into the busiest time of the year." U.S. refinery utilisation rose by 1 percentage point to 85.9 percent of capacity last week, API data showed. This caused crude inventories to fall by 794,000 barrels in the week to May 14, API data showed, versus analyst expectations of a 700,000-barrel rise in the latest Reuters poll.
The market is expecting another set of data from the U.S. Energy Information Administration which is set to arrive on Wednesday at 1400 GMT.