Oil skids on euro zone woes, weak economic data
NEW YORK (Reuters) - Brent crude oil slumped more than 2 percent on Thursday to end at the lowest level since December, as investors avoided risky assets due to mounting fears that turmoil in Greece could spread to other stressed euro zone economies.
U.S. crude fell for the fifth straight session, pressured by weak economic data, which taken together with the gloomy news from Europe spelled bad prospects for oil demand going forward.
U.S. crude was down by less than Brent, as owners of the U.S. Seaway pipeline announced just after midday that its reversal was completed as expected.
Brent's premium to U.S. crude narrowed to below $15 a barrel from above $19 the previous session.
The initial flow of crude the Seaway pipeline will carry toward the main U.S. refining center in Houston was to occur by the weekend, a landmark move aimed at easing the supply glut of U.S. crude at the delivery hub in Cushing, Oklahoma. That should soften the premium that Brent has enjoyed over U.S. crude.
But market focus remained on Greece and the growing euro zone debt crisis that has been pressuring oil prices in recent days. Oil futures fell with U.S. equities which tumbled as a series of weak U.S. economic data piled on top of dreary news from Greece and Spain. .N
Greece faces new elections on June 17, after inconclusive polls this month left politicians unable to form a government. Whoever emerges as a new leader will have to deal with a country already falling behind on its promises to lenders.
The Fitch Ratings Agency downgraded Greece's credit rating to CCC from B-minus, citing the heightened risk that the country might leave the euro zone.
That followed the European Central Bank's move to stop providing refinancing to some Greek banks found to be undercapitalized, news that roiled world markets on Wednesday.
Worries about the health of Spain's banks also resurfaced after a report that customers at Bankia (BKIA.MC) had withdrawn more than 1 billion euros from their accounts in the past week, though the Spanish government said there had been no exit of deposits from the lender.
"The oil market, like other risky assets, is within the grips of uncertainty surrounding the euro zone," said Harry Tchilinguirian, BNP Paribas head of commodities strategy.
In London, ICE Brent crude futures for July delivery the new front-month contract, settled at $107.49 a barrel, falling $2.26, marking the lowest settlement since December 30.
The Brent contract struck a session low of $106.98, also the lowest intraday price since December 30. From the beginning of May, front-month Brent has fallen $11.67, or nearly 10 percent.
U.S. crude settled at $92.56, down 25 cents, the lowest close for front-month crude since November 2. From the beginning of the month, front-month crude has skidded nearly 12 percent.
"Brent was getting end-of-month positioning support, but now that the June contract has rolled off, the focus is firmly back on Greece and Europe's problems," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
July Brent's spread against the July U.S. crude contract narrowed to $14.55.. The premium had ended at $18.90 on Wednesday, when the Brent June contract expired.
Brent's trading volume was more than 700,000 contracts, 26 percent above the 30-day average. That far outstripped U.S. crude dealings of just below 600,000 contracts, some 4 percent above its 30-day average.
Zapped by global benchmark Brent, U.S. RBOB June gasoline finished 4.27 cents lower at $2.8782 a gallon, extending losses to the sixth straight day. It fell below its 200-day moving average of $2.8796 for the first since February 2, according to Reuters data.
WEAK U.S. DATA
U.S. crude rose in early trade but began paring gains midmorning after the release of the closely watched Philadelphia Fed business conditions index for the mid-Atlantic region, which dropped to its lowest level since September while a gauge of U.S. economic activity fell in April for the first time in seven months.
Moreover, data showing that U.S. jobless claims were unchanged last week offered no relief as it pointed to sluggish growth in hiring.
Also weighing on oil prices was talk of an emergency stock release. The Kyodo news agency reported on Wednesday that U.S. President Barack Obama had moved to seek support to tap strategic oil reserves from other G8 leaders at a summit this weekend before the European Union's July embargo of Iranian crude.
The International Energy Agency, adviser to 28 industrialized nations, remained ready to release emergency oil stocks if needed as it said oil prices continues to threaten the fragile global economic recovery despite their recent fall.
Earlier, U.S. crude rose to its session high as traders reacted to remarks from the U.S. ambassador to Israel that U.S. plans for a possible military strike on Iran are ready and the option is "fully available," also helped push U.S. crude higher in early trade.
Ambassador Dan Shapiro's remarks came as Iran and world powers hold more talks next week over its disrupted nuclear program. Tensions between Iran and the West over the program had lifted oil prices to the year's highs in early March, but Tehran's agreement to resume talks had eased the risk premium that a sudden disruption of Iran oil supplies might bring.
In the U.S. Senate, a vote set on Thursday on a tough new round of economic sanctions on Iran's oil sector was blocked by Republicans, who said they needed more time to examine the package that included measures meant to shut down any financial deals with the country's powerful state oil and tanker enterprises.
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