U.S. crude oil settled sharply lower Wednesday, on demand growth concerns as the eurozone financial problems continued unabated, notwithstanding the Energy Information Administration's weekly report of an unexpected decline in U.S. crude stockpiles for the week ended September 21. Meanwhile, the dollar strengthened against most major currencies with investors finding the currency a safe haven.
Oil reacted sharply to Greece's financial distress and spiraling borrowing costs in Spain with the ongoing protests against the proposed austerity measures. Comments by Philadelphia Federal Reserve President Charles Plosser that the current round of quantitative easing may not do much for the economy also impacted oil prices.
The Energy Information Administration's weekly oil report showed U.S. crude oil inventories to have unexpectedly dropped by 2.40 million barrels with gasoline stocks easing 0.50 million barrels for the week ended September 21. Analysts expected crude oil inventories to jump by 1.5 million barrels with gasoline stocks unchanged.
Light Sweet Crude Oil futures for November delivery plunged $1.39 or 1.5 percent to close at $89.98 a barrel on the New York Mercantile Exchange Wednesday.
Crude prices scaled a high of $91.34 a barrel intraday and a low of $88.95.
Yesterday, oil extended losses to settle near a 2-month low as the dollar rebounded to trade higher after comments from Philadelphia Federal Reserve President Charles Plosser dampened investor sentiments. Plosser indicated the Fed may have to raise short-term interest rates before mid-2015 and believes the current round of quantitative easing would not do much for the economy.
Greece was once again in focus after riot police clashed with demonstrators in Athens, protesting against another round of austerity measures. Finance minister Yannis Stournaras said Greece would need an additional 13 to 15 billion euros if the country were given a two-year extension of its bailout program.
Meanwhile, Spain looks increasingly likely to seek a bailout for its economy even as Prime Minister Mariano Rajoy faces strong protests against austerity measures, which would be unveiled in his 2013 budget on Thursday. Yields on Spanish benchmark 10-year government bonds crossed the 6 percent mark, which is considered unsustainable.
There were also media reports that Catalonia has announced a snap election to decide on its future with Spain which could lead to independence for the region. The Catalonia region is considered the most economically significant segment of the country.
The euro traded lower against the dollar at $1.2859 on Wednesday, as compared to $1.2900 late Tuesday in North America. The euro scaled a high of $1.2913 intraday and a low of $1.2836.
The dollar index, which tracks the U.S. unit against six major currencies, traded at 79.90 on Wednesday, up from 79.66 in North American trade late Tuesday. The dollar scaled a high of 80.01 intraday and a low of 79.61.
In economic news the U.S., the Commerce Department said new home sales edged down 0.3 percent to a seasonally adjusted annual rate of 373,000 in August from the revised July rate of 374,000. Economists expected new home sales to climb to an annual rate of 380,000 from the 372,000 rate originally reported for the previous month. Nonetheless, prices jumped a record 11.2 percent in August.
Elsewhere, eurozone leading index registered its first increase in six months, rising 0.6 percent month-on-month in August to 105.3, according to the Conference Board.
Germany's EU harmonized inflation slowed in September as expected by economists, preliminary data from the Federal Statistical Office showed. The EU measure of inflation, as per the harmonized index of consumer prices (HICP), decelerated to 2.1 percent in September from 2.2 percent in August. This was in line with economists' expectations.
Meanwhile, the German government on Wednesday approved a memorandum, clearing the last hurdle in the ratification of the permanent bailout fund, the European Stability Mechanism.
by RTT Staff Writer
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