Forexpros – Crude oil futures traded lower during U.S. afternoon trade Monday, plunging nearly 4% amid growing fears that Spain will need a full-scale sovereign debt bailout and fresh concerns over a Greek exit from the euro zone.
On the New York Mercantile Exchange, light sweet crude futures for delivery in September traded at USD88.20 a barrel during U.S. morning trade, plummeting 3.77%.
Earlier in the day, prices fell by as much as 4.2% to trade at a session low of USD88.03 a barrel, which was the lowest since July 17.
Pressuring the commodity complex, yields on Spanish 10-year bonds rose to a record 7.57% on Monday, well above the 7% threshold widely considered unsustainable in the long term, amid growing fears that Spain will need a full bailout after the state of Murcia followed Valencia in requesting financial aid from Madrid over the weekend.
Spanish media reported that several others among Spain’s 17 semi-autonomous regions are expected to follow, including the two biggest regions, Catalonia and Andalucia.
Meanwhile, fears over a Greek exit from the euro zone resurfaced, amid worries whether Athens can meet the conditions of its international bailout ahead of a meeting with the Troika on Tuesday.
The news prompted investors to shun riskier assets, such as stocks and commodities, and flock to traditional safe haven assets like the dollar and U.S. Treasuries.
The euro sunk to the lowest level since June 2010 against the U.S. dollar, while the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, rose 0.6% to trade at 84.13, the highest level since July 2010.
Oil prices typically weaken when the U.S. currency strengthens as the dollar-priced commodity becomes more expensive for holders of other currencies.
Elsewhere, concerns over China’s slowing economy also hit demand for growth-linked assets.
Song Guoqing, a member of the People’s Bank of China monetary policy committee said earlier that China’s economic expansion may cool for a seventh straight quarter to 7.4% in the three months to September.
China is the world’s second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for September delivery tumbled 3.75% to trade at USD102.81 a barrel, with the spread between the Brent and crude contracts standing at USD14.61.
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