Forexpros – Crude oil futures edged modestly lower on Friday, as a broadly stronger U.S. dollar and concerns that the financial crisis in the euro zone is worsening outweighed better-than-expected U.S. employment data and growing tensions between Iran and the West.
On the New York Mercantile Exchange, light sweet crude futures for delivery in February traded at USD101.90 a barrel by close of trade on Friday, climbing 2.95% over the week.
Crude’s modest losses came as the U.S. dollar rallied after the U.S. Department of Labor said nonfarm payrolls increased by 200,000 in December from a downwardly revised 100,000 the previous month and surpassing expectations for a 150,000 increase. The unemployment rate unexpectedly fell to 8.5%, the lowest level since February 2009.
While the strong U.S. jobs data would have normally boosted oil prices higher, the news sparked demand for the dollar, which trades inversely from crude.
The euro dropped to a 16-month low against the greenback, while the dollar index settled at 81.61 by close of trade on Friday, the highest since September 2010.
Concerns over the euro zone’s debt crisis lingered after the European Central Bank said bank deposits at its overnight facility reached a new all-time high of EUR455 billion on Friday, underscoring the unwillingness of European lenders to lend to each other.
On Thursday, France sold EUR4.02 billion of 10-year bonds in an auction which met with solid demand but at higher yields. The French auction came one day after an auction of German 10-year government debt which encountered lower than average investor demand.
Euro zone developments have dominated trading in the oil market for the last several months, amid worries that the sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil.
The euro zone accounted for nearly 16% of global oil consumption in 2010, according to data from British Petroleum.
Crude prices surged to USD103.73 a barrel on Thursday, the highest since May 11 as tensions between Iran and the U.S. appeared to be escalating after Iran’s military chief warned the U.S. against sending naval ships back to the Persian Gulf.
The U.S. dismissed the warnings saying regularly scheduled movements of Navy ships will continue as usual.
Oil spent recent sessions spiking on fears that Iran may make good on threats to cut off access to the Strait of Hormuz, a narrow passageway that connects the oil-rich Persian Gulf nations with the rest of the world.
Meanwhile, the euro zone has agreed on principle to begin an oil embargo against Iran per a diplomat. However, the details of the potential embargo remain uncertain.
Iran is the world’s third largest oil exporter and fourth biggest producer, pumping nearly 5% of global supplies in 2010.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for February delivery settled at USD113.48 a barrel by close of trade on Friday. The Brent contract rallied 5.5% over the week, with the spread between the Brent and the crude contracts standing at USD11.58 a barrel.
In the week ahead, investors will be closely watching a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel on Monday for any signs of progress in resolving the region’s two-year old debt crisis.
Markets will also continue monitoring tensions between Iran and the U.S. after Iran’s state-run Fars news agency reported Sunday that the Iranian Revolutionary Guard Corps will hold large-scale exercises in the Strait of Hormuz and the Persian Gulf next month.
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