Investors Worries on Spanish Economy Led to Crude Oil Price Drop

Oil prices recently dropped further as investors worried about the renewed recession in Spain and feared that the country will be next to require a bailout.

June delivery’s WTI crude prices, the main contract of New York, fell by six cents from its latest closing amount to end at $104.87 per barrel. In London, a similar drop was posted by Brent crude oil prices as it fell by 36 cents to finish at $119.47.

The futures contract of New York was able to trim their earlier losses. However, the momentum was restrained by Spain following an official data release that shows another quarterly decline of 0.3% by the Spanish economy.

Summit Energy’s Matt Smith said that in general, there is sufficient oil support. However, worries on the weakening European demand and possibly in the United States in case the country’s economic data keeps on deteriorating affected the market.

Investors are afraid that Spain may follow the spiraling path of Greece and cause market chaos, which can lead to huge damage to energy demand worldwide.

Doubts regarding the ability of Spain to settle its deficit reduction targets were heightened by the troubles of the Spanish banks. Plenty of banks have been challenged by bad loans following a price collapse of properties in 2008.

Standard & Poor’s recently issued credit rating downgrades for several of Spain’s largest banks, such as BBVA and Santander. The agency also reduced the credit rating of the entire country by two levels.

David Hufton, an analyst at PVM Oil Associates, said that since the size of the economy of Spain is big, the gravity of its debt problem and the possible impact on banks across the region will tremendously affect the entire continent. Simply put, when Spain is in crisis, it indirectly implies that the whole eurozone is in crisis as well.

A mixed March consumer data was posted in the U.S., the largest oil consumer of the world. According to the government, growth in consumer spending, a primary economic driver, weakened by 0.3% in the month of March following an increase of 0.9% in February. Moreover, personal incomes increased by 0.4%.

By: Chris Termeer