Forexpros – Crude oil prices ended Friday’s session mildly lower, dragged down by a combination of lingering concerns over the debt crisis in the euro zone as well as growing fears over a ‘hard landing’ in China and a slowdown in the U.S.
Prices came off their lowest levels of the session towards the end of Friday’s U.S. trading session as sentiment improved amid speculation Spain will request European aid for its troubled banks over the weekend.
On the New York Mercantile Exchange, light sweet crude futures for delivery in July settled at USD84.46 a barrel by close of trade on Friday. Earlier in the day, prices fell to as low as USD82.01 a barrel, the lowest since June 4, when prices fell to an eight-month low of USD81.21 a barrel.
Despite Friday’s losses, crude futures rose 2.37% on the week, the first weekly gain in six, as prices rose earlier in the week on the back of growing expectations for further stimulus for the U.S. economy.
But prices came under pressure Thursday, falling nearly 3.9% from the highs of the day after Federal Reserve Chairman Ben Bernanke warned that the U.S. economy faced “significant risks” arising from the crisis in Europe, but refrained from indicating that the central bank was prepared to implement any fresh stimulus measures.
In testimony to a congressional committee in Washington, Bernanke said that the Fed remained “prepared to take action” to protect the U.S. economy and financial system if stresses on the financial system escalate, but stopped short of indicating what these actions might be.
The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand.
The bearish momentum carried over to Friday’s session, with oil prices falling nearly 2% before trimming losses during late U.S. trader after sources told Reuters Spain is expected to request European aid for its troubled banks over the weekend.
Rating’s agency Fitch cut Spain’s credit rating by three notches to triple-B on Friday, and indicated that further cuts could still be made as the country struggles to stabilize its fragile banking system.
The downgrade came as senior European Union officials prepared to discuss options for financial aid to Madrid in a telephone conference on Saturday morning.
Concerns about Spain’s banks have grown since Bankia, the country’s fourth-largest lender, said last month it needed EUR19 billion in state aid to shore itself up against bad loans.
There are worries that the region’s sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil. The euro zone accounted for nearly 12% of global oil consumption in 2010, according to data from British Petroleum.
Meanwhile, oil traders remained cautious after China announced a surprise interest rate cut on Thursday, which some market participants took as a sign that the world’s second largest economy may be slowing more than previously thought.
Over the weekend, China released a flurry of economic reports that confirmed the world’s second largest economy was in fact slowing more rapidly than analysts had projected.
China’s industrial production grew 9.6% in May from a year earlier, versus 9.3% growth in April, the nation’s Statistics Bureau said. The result missed expectations for a 9.9% rise.
On the inflation front, consumer and wholesale price gains eased more than expected. The May consumer price index rose 3%, cooling from a rise of 3.4% in April, while the producer price index fell 1.4%.
The data compared to forecasts for a 3.2% increase for the CPI and a 1.1% contraction in wholesale prices.
Meanwhile, retail sales rose 13.8%, compared to a 14.1% gain in April, and weaker than analyst expectations for a 14.2% rise.
A deeper slowdown in China, the world’s second biggest economy, would impair a global expansion that is already faltering because of the implementation of harsh austerity measures in Europe.
China is the world’s second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Concerns over rising U.S. oil supply levels also weighed, after weekly data from the U.S. Energy Department showed that crude oil inventories are at the highest level since 1990, underscoring fears over a slowdown in oil demand from the U.S.
Oil prices have fallen nearly 20% since the start of May. Futures are down almost 24% since hitting a March 1 intraday peak of USD110.53 a barrel.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for July delivery settled at USD99.64 a barrel by close of trade on Friday. Prices fell to as low as USD97.24 earlier in the day, the lowest since June 4, when prices dropped to a 17-month low of USD95.65 a barrel.
The Brent contract added 1.81% over the week. The spread between the Brent and the crude contracts stood at USD15.18 a barrel by close of trade Friday.
London-traded Brent prices are down nearly 23% since hitting an intraday high of USD128.38 on March 1.
In the week ahead, markets will be keeping a close eye on developments in Spain, as Madrid begins to hammer out the details of a rescue package for its banks, while uncertainty over the outcome of Greek elections on June 17 is likely to weigh on investor sentiment.
The EU issued a statement Saturday in support of Spain’s request for financial assistance for its troubled banks. It added that it expects the loans to total about EUR100 billion.
Investors will also be eyeing U.S. retail sales data, as well as consumer price inflation figures as investors try to gauge the strength of the country’s economic recovery.
Attention will also likely to shift to Thursday’s meeting of the Organization of Petroleum Exporting Countries in Vienna. OPEC most recently said it was pumping 32.4 million barrels a day of oil, a level not seen since the summer of 2008, and has acknowledged that it is producing more oil than the market needs.
However, market participants said the bloc may choose to keep output high as tightening sanctions reduce oil output in Iran. The country is OPEC’s second-largest producer behind Saudi Arabia, which has boosted output to account for the decline in Iranian exports.
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