Oil prices extended their downward slide Wednesday on rising US supplies and fears that debt-crippled Greece will exit the euro, wreaking havoc in the eurozone.
The euro hit a four-month low against the dollar as investors sought a haven from risk, pressuring demand for dollar-priced oil and other commodities.
New York’s main contract, West Texas Intermediate crude for delivery in June, shed $1.17 to close at $92.81 a barrel
Brent North Sea crude for June settled at $111.71 a barrel, down 53 cents from Tuesday in London trade.
“The market is not convinced that the EU can keep Greece in the zone and stop the contagion from spreading, despite the meeting of the minds between German Chancellor Angela Merkel and new French president Francois Hollande,” said Phil Flynn at PFG Best.
On Wednesday, Greece began assembling a caretaker government to plan new elections after an inconclusive May 6 vote left the nation’s commitment to a crucial EU-IMF bailout in tatters.
Greece and the world’s financial markets had been anxiously awaiting the date for new polls amid growing fears the cash-strapped nation could be forced out of the 17-member eurozone. The new vote reportedly will be held on June 17.
“A resurgence of sovereign debt fears has accompanied Greece’s failure to form a government and an apparent wider European shift in political rhetoric away from austerity,” Barclays analysts said.
Flynn said that news of money being pulled out of Greek banks on Monday “increases the fear of a default.
“If Greece leaves the eurozone it’s going to raise fears about contagion – you’re going to have a deflationary trend and at the same time you’re going to see more pressure from the dollar.”
Across the Atlantic, the United States, the world’s largest oil-consuming economy, presented a mixed picture of its petroleum supplies.
Crude oil reserves soared by 2.1 million barrels in the week ending May 11, the Department of Energy said, well above expectations.
Supplies of distillates, including diesel and heating fuel, sank by almost one million barrels, almost five times more than expected.
A sharp drop in gasoline supplies, by 2.8 million barrels, was roughly nine times the estimate.
The improved gasoline demand briefly lifted the New York futures contract.
“We tried a rebound after the US inventories, with good gasoline demand – the highest in three months – and some good economic data,” Flynn said.
Data on industrial production and new housing construction in April beat market expectations.
But Sucden analyst Myrto Sokou pointed to the crude oil build as bearish for the market.
“The oil market continues to remain under pressure following the fragile economic conditions in the eurozone and the lack of oil demand from the United States, that showed increasing crude oil inventories,” Sokou told AFP.