Oil tumbles to seven-month low on U.S. stockpile glut, Europe

Euro Decline

The euro touched $1.2362, the lowest level against the dollar since July 1, 2010. A weaker euro and stronger dollar curb commodities’ appeal as an alternate investment. The Standard & Poor’s GSCI Index of 24 commodities decreased as much as 2.6 percent and touched the lowest level since Oct. 7.

The Standard & Poor’s 500 Index dropped 1.5 percent and the Dow Jones Industrial Average was down 1.3 percent.

“We’re looking at the same financial factors that have been moving the oil market,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Equities are getting killed, the euro is getting killed and the pessimism about Europe only seems to deepen.”

Europe needs to take steps to help “debt sustainability,” Spanish Prime Minister Mariano Rajoy said today. Italy’s borrowing costs rose as the government sold 5.73 billion euros ($7.1 billion) of five- and 10-year debt, falling short of the maximum target of 6.25 billion euros.

Greek Vote

In Greece, a VPRC opinion poll for Epikaira magazine showed that anti-austerity party Syriza had the support of 30 percent of voters, compared with 26.5 percent for New Democracy, which backs the terms of a European Union bailout. Greece holds new elections on June 17.

“The situation in Greece is bad and Spain’s position is looking untenable,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield Massachusetts. Fundamentals of the oil market also are terrible, she said.

Economic confidence in the euro area declined in May to the lowest level since October 2009. An index of executive and consumer sentiment in the 17-nation euro area fell to 90.6 from a revised 92.9 in April, the European Commission in Brussels said today.

The drop in oil prices accelerated after a report showed the number of Americans signing contracts to buy previously owned homes fell in April by the most in a year. The index of pending home resales dropped 5.5 percent from the prior month, figures from the National Association of Realtors showed today in Washington.

Trade Flows

“We’re seeing a risk-off trade flow in all the markets mostly motivated by events in Europe,” Evans said. “The oil market has issues of its own including weak demand and ample production from a number of sources.”

U.S. crude output rose 90,000 barrels a day to 6.24 million in the week ended May 18, the highest level since February 1999, last week’s Energy Department report showed. Oil production in the Organization of Petroleum Exporting Countries climbed 305,000 barrels to 31.405 million barrels a day in April, the most since October 2008, according to a Bloomberg survey.

Electronic trading volume on the Nymex was 481,860 contracts as of 3:24 p.m. Volume totaled 452,296 contracts yesterday, 19 percent below the three-month average. Open interest was 1.44 million.

Bloomberg News

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