Crude oil futures prices were lower early Wednesday on fresh worries about a slowdown in European economies. Germany said the country’s economy contracted by around 0.25% in the fourth quarter, while Spain’s industrial output dropped 7% year-on-year in November, following a 4.2% drop in October. The economic news pushed the euro lower against the dollar, spurring investors to avoid dollar-denominated oil futures, traders said.
Fitch Ratings warned Wednesday that the European Central Bank must do more to prevent a “cataclysmic” collapse of the euro. The stronger U.S. currency makes dollar-denominated commodities, like crude oil, more expensive for some investors.
Light, sweet crude oil for February delivery on the New York Mercantile Exchange was down 83 cents at $101.41 a barrel. North Sea Brent crude oil for February was 21 cents lower, at $113.07 a barrel.
Despite the weakness, prices are being underpinned above $100 a barrel by concerns over rising tensions between Iran and the U.S. U.S. Treasury Secretary Timothy Geithner on Wednesday urged top Chinese officials to significantly reduce imports of Iranian crude, after a new U.S. sanctions policy aimed at nations that continue trading with Iran.
The U.S. sanctions policy is aimed at sharply reducing Iran’s exports to its biggest markets, including big Asian nations like China, India, Japan and South Korea. A new law would bar from U.S. financial markets foreign financial institutions that do business with Iran’s central bank, which plays a critical role in facilitating foreign trade. One way for a nation to get an exemption is to show a “significant reduction” in Iranian oil imports.
The diplomatic push by the U.S. comes as the European Union is expected this month to finalize plans to ban imports of Iranian crude amid widespread concerns that Iran is pursuing a nuclear weapons program. Iran said its nuclear program has a peaceful intent.
Tensions flared anew on Wednesday as a top Iranian nuclear scientist was killed in a Tehran car bombing. Iran immediately blamed the U.S. and Israel for the killing. Three other Iranian scientists have been killed by car bombs in the past two years.
As the U.S. led stepped up diplomatic efforts to halt Iranian’s nuclear program, Iran, the second-biggest oil producer in the Organization of Petroleum Exporting Countries, has threatened to block the Strait of Hormuz, the source for Gulf oil exports, through which about 20% of the world’s daily oil needs flow.
Traders said the market was awaiting guidance from U.S. oil inventory data due out at 10:30 a.m. EST from the Energy Information Administration. Analysts surveyed by Dow Jones Newswires expect data to show crude oil stocks by 1.1 million barrels in the week ended Jan. 6.
Gasoline stocks are expected to increase by 2.1 million barrels, while distillate stocks are expected to rise by 1.9 million barrels. The data is expected to show a modest 0.2 point rise in refinery operations.
Late Tuesday, the American Petroleum Institute said crude oil stocks rose 397,000 barrels, while refiners boosted operations by 1.1 percentage point. Gasoline stocks rose 1.9 million barrels, while stockpiles of distillates (heating oil and diesel) increased 846,000 barrels.
EasyForexNews Research Team