Markets: News  

Oil ends below $83 as demand concerns weigh

SAN FRANCISCO (MarketWatch) -- Crude futures on Monday finished below $83 a barrel for the first time since October as news of a bailout for Spanish banks failed to offer any lasting relief over concerns about oil demand from the euro zone.

Light, sweet crude futures for delivery in July (CLN2) shed $1.40, or 1.7%, to settle at $82.70 a barrel on the New York Mercantile Exchange, marking a full reversal from the intraday high of $86.64 seen earlier.

That was the first close below $83 for a most-active crude futures contract since early October, according to FactSet Research data. July crude had fallen by 72 cents on Friday.

"As the euphoria of the Spanish-bank bailout fades, so does the rally in crude," wrote Matt Smith, an analyst with Summit Energy, in emailed comments.

West Texas Intermediate crude "was over 3% higher overnight on the latest development in the euro debt crisis, but has now mounted a selloff as general markets have given back gains and more," he said. "The euro is now in negative territory, while both Spanish and Italian government debt have sold off strongly. This reflects a move back to risk adversity, hence the downward movement in crude."

Spain on Saturday agreed to receive €100 billion ($125 billion) (EURUSD) in financial aid for its struggling banking sector from the European Union. Read more on Spanish-bank aid.

The "soothing Band-Aid on Spain's troubles in the form of a larger rescue plan than we had forecast" helped curb "imminent euro-zone collapse anxiety," according to Seth Rabinowitz, who covers commodities as a partner at Silicon Associates.

But that was soon replaced by "renewed anxiety on global demand coupled with Greek-election uncertainty looming around the corner, this Sunday," he said.

Upbeat sentiment among investors across some asset classes eased, with the euro turning lower and the Dow Jones Industrial Average (DJIA) falling, while the dollar index posted a modest gain. Read about U.S. stock-market action.

The ICE dollar index (DXY) , which measures the greenback against a basket of six major currencies, rose to 82.519 from 82.439 Friday in North America, trading above an earlier low of 81.785. The euro (EURUSD) bought $1.2498, down from $1.2512 late Friday, and off an earlier high of $1.2647. Read more on currencies.

In Europe, stocks erased earlier gains as investors questioned the details of Spain's bank-aid deal. The Stoxx Europe 600 index (SXXP) closed slightly lower after tacking on as much as 1.9% earlier. See full coverage in Europe Markets.

Petroleum-product prices, meanwhile, ended lower Monday. July futures for gasoline (RBN2) fell nearly 3 cents, or 1.1%, to $2.66 a gallon and July heating oil (HON2) fell almost 4 cents, or 1.4%, to close at $2.64 a gallon.

In the energy sector, natural gas led the percentage declines. Natural-gas futures for July delivery (NGN12) dropped 8 cents, or 3.5%, to settled at $2.22 per million British thermal units as a surplus of U.S. inventories continued to plague the market.

Monthly reports OPEC on tap

Energy traders also digested Chinese economic data released over the weekend, which suggested weaker domestic conditions in May, but also showed surprising strength in exports and imports. See more on China data.

And traders remained cautious ahead of separate monthly reports due out Tuesday and OPEC's official meeting later this week.

The Energy Information Administration will issue its report on the short-term energy outlook, while the Organization of the Petroleum Exporting Countries will release its report on the oil market.

OPEC members are also gathering in Vienna for a conference, ahead of an official meeting on production quotas set for Thursday.

"We'll get the usual rising drumbeat of rhetoric ahead of the OPEC meeting," said Summit Energy's Smith.

The cartel's president, Abdul al-Luaibi of Iraq, said Monday that world oil markets were currently oversupplied and have led to a "severe" and rapid decline in oil prices, according to a news report from Platts.

Meanwhile, Saudi Arabia's analysis of the current market situation suggests OPEC needs a higher production ceiling, according to published remarks from the Kingdom's Oil Minister Ali al-Naimi. Read more on the Saudi remarks.

But OPEC's almost certain to maintain its official output ceiling at 30 million barrels per day at its meeting, wrote Julian Jessop, chief global economist at Capital Economics, in a research note Monday.

Even so, "this decision would not preclude some cuts in production in the coming months if demand continues to weaken, since actual output is well above its notional target," he said. Read an OPEC preview.

Delegations from Algeria, Kuwait, Nigeria and the OPEC Secretariat will hold a subcommittee meeting on Tuesday, with the official meeting of the OPEC Conference and announcement on the production ceiling scheduled for Thursday.