Crude fails to hold on to $79 as US dollar raises against euro after stress test results
Reported by Proactive Investors on Saturday, 24 July 2010 (on July 24, 2010)
Oil prices declined largely due to movements in the currency markets following the release of the results of the stress test of 91 European banks. Even though the results met expectations with just 7 banks failing the test, including one Greek and five Spanish banks, the euro declined after rising against the US dollar immediately following the release of the results.
The American currency retreated earlier in the week after US jobless claims were shown to have risen by 37,000 to 464,000 after falling to 429,000 in the previous week. As the greenback was recovering from these losses, the euro was weighed on by Moody’s decision to place Hungary’s sovereign rating under review for a possible downgrade. Earlier this year, Hungary’s new government stated that the budget deficit was worse than thought and the country would most likely follow Greece, which had to accept a multi-billion bailout package from the EU and the *International Monetary Fund (IMF)* to avoid bankruptcy.
In addition to that, the stress results weren’t convincing enough to support Europe’s single currency with commentators questioning why all but one Greek banks were able to pass.
Pound sterling rose against both the euro and the US dollar after Q2 GDP data beat expectations with a 1.1% rise during the quarter, which also marked a 1.6% year on year improvement. However, the gains in the greenback proved enough to push down the dollar-denominated crude, hurting demand by making it more expensive for holders of other currencies.
*US light, sweet crude* for September delivery stood just below US$79/barrel, while September* Brent Crude* dropped to US$77.34/barrel on London’s ICE Exchange.
Oil price stated the week at US$76/barrel before climbing on concerns that this year’s hurricane season could disrupt oil production after tropical storm Bonnie was given a 15% chance of developing into a hurricane and projected to move in the Gulf. Oil companies operating in the area started evacuating personnel and equipment. Among them was *BP (LON:BP)*, which is currently in the middle of drilling a relief well that is expected to permanently stop the disastrous leak from the company’s ruptured Macondo well, which has so far wiped out more than a third of BP’s share price.
The prices benefitted from the generally positive economic data that came out in the EU and the US this week following a decline in University of Michigan’s consumer sentiment index that was reported to have dropped from 76.0 to 66.5 on Friday, keeping oil futures down. UK retail sales were shown to have risen 0.7% in June, while the EU's services PMI (purchasing managers index) improved from 56.0 to 56.7 in July, while manufacturing PMI rose from 55.6 to 56.5. In additional to that, industrial orders in the euro zone climbed 3.8% in May.
This outweighed Fed Chairman Ben Bernanke’s bearish comments on the US economy after he called the outlook “unusually uncertain.” This week’s US jobless claims data turned out to be negative, showing a larger than expected increase to 464,000.
This week’s inventories reports were inconclusive. Wednesday’s data from *Energy Information Administration (EIA)* showed an unexpected increase of 400,000 barrels in US crude stockpiles. The report also revealed a 1.1 million barrel rise in gasoline stocks, while distillates, which include diesel and heating oil, added 3.9 million barrels. On Tuesday, the *American Petroleum Institute (API)* said that US crude stockpiles shed 241,000, while energy information agency Platts projected a decline of 1.6 million barrels.
Rosner Says EU Stress Tests `Weak,' Banks Need Capital: Video
Source: Bloomberg
July 26 (Bloomberg) -- Joshua Rosner, an analyst at Graham Fisher & Co., talks with Bloomberg's Lori Rothman about the results of the European Union's stress tests for banks. Jean-Claude Juncker, who heads the group of euro-area finance ministers, say
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