Futures slid as much as 3 percent after Spain’s governing
Socialist party suffered its worst electoral defeat in more than
30 years and Standard & Poor’s said on May 20 it may lower
Italy’s credit rating. The Dollar Index climbed to its highest
in more than nine weeks as declining Asian stocks spurred demand
for safer assets.
“External macro factors, especially the strength of the
U.S. dollar and the negative start of the week in Asian
equities, have weakened commodities,” said Eugen Weinberg, an
analyst at Commerzbank AG. “The dollar is higher against the
euro because of worries about Europe’s debt.”
Crude for July delivery lost as much as $2.99 to $97.11 a
barrel in electronic trading on the New York Mercantile
Exchange. It was at $97.24 at 10:42 a.m. London time.
Brent crude for July settlement on the London-based ICE
Futures Europe exchange fell as much as $3.26, or 2.9 percent,
to $109.13 a barrel. On May 20, the contract climbed 97 cents,
or 0.9 percent, to $112.39.
The euro weakened by 1.35 percent against the dollar to
$1.3970, the lowest since March 16. The Dollar Index, which
tracks the greenback against the currencies of six major U.S.
trading partners, rose to 76.366, the strongest since March 16.
A stronger dollar reduces the appeal of commodities as an
alternative to the U.S. currency.
Greek Bonds Plunge
Greek Prime Minister George Papandreou is scheduled to
brief his Cabinet today on budget cuts and asset sales to keep
European aid. Greek government bonds plunged May 20, driving 10-
year yields to a euro-era high, on speculation the nation won’t
be able to avoid reorganizing its debt. The spread, or yield
difference, between the 10-year bonds and similar-maturity
German bunds widened to a record. Fitch cut Greece’s credit
rating to B+ from BB+, four notches below investment grade.
“This past week was fraught with concern that Greece and
Spain’s persistent debt problems could affect global markets,”
John Caiazzo, president of Acuvest Commodity Brokers Inc. in
Temecula, California, said in a note to clients. “We continue
to favor the short side for an eventual move for nearby futures
crude to the $80 to $85 price level.”
Consumer Spending Cools
U.S. consumer spending probably cooled in April amid higher
fuel prices, a Bloomberg News survey showed before a government
report this week.
Hedge funds cut bullish bets on oil in New York as the
dollar strengthened amid an exodus from commodities. The funds
and other large speculators reduced so-called net long
positions, or wagers on rising prices, by 13 percent in the
seven days ended May 17, according to the Commodity Futures
Trading Commission’s Commitments of Traders report. They dropped
to the lowest level since the week ended Feb. 15, when the
resignation of Hosni Mubarak as Egypt’s president sent oil to an
11-week low, the May 20 report showed.
In Iceland, a volcanic eruption is abating after forcing
the country’s main international airport to close, the second
such disruption in 13 months to the island nation’s air traffic.
“Prices are on a downwards trend on the back of renewed
Icelandic volcano fears, ongoing European debt miasma and
potentially also the latest CFTC data,” analysts led by David
Wech at Vienna-based researcher JBC Energy GmbH said in a note.
Wild Card
An eruption at Eyjafjallajokull on April 14, 2010, closed
European airspace for six days, grounding 100,000 flights at a
cost of $1.7 billion, according to an estimate then by the
International Air Transport Association.
“The volcano in Iceland is still a wild card,” Bjarne
Schieldrop, chief commodity analyst at SEB AB, Sweden’s third-
biggest bank by market value, said in a report today.
Economic reports indicated the U.S. economic recovery is
sputtering and fuel demand may drop. The index of U.S. leading
indicators slipped in April after nine months of increases.
Manufacturing in the Philadelphia area grew in May at the
slowest pace in seven months and April existing home sales fell.
Consumer spending probably cooled in April as higher food
and fuel prices forced Americans to cut back on other items,
economists said a government report May 27 will show. Purchases
probably increased 0.5 percent, the smallest gain in three
months, after climbing 0.6 percent in March, according to the
median of 66 estimates in a Bloomberg News survey.
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