Oil prices slip on Spain fears

Posted: 01 May 2012 0436 hrs
Source: Channel New Asia

NEW YORK: Oil prices ticked lower Monday as investors fretted over Spain's double-dip recession and deepening fears that the eurozone's fourth-largest economy may be the next to need a massive bailout.

New York's main contract, West Texas Intermediate (WTI) crude for delivery in June, finished at $104.87 a barrel, down six cents from Friday's closing level.

Brent North Sea crude for June shed 36 cents to settle at $119.47 in London trade.

The New York futures contract managed to pare earlier losses but momentum was curbed by Spain, after official data showed the Spanish economy contracted for the second straight quarter in the first three months of the year, by 0.3 percent.

"Generally there is enough strength to support oil," said Matt Smith at Summit Energy.

"But the general fear about slowing demand in Europe and potentially here in the US if the economic data continue to deteriorate" weighed on the market, he said.

Investors fear that Spain could follow a Greek-style downward debt spiral and trigger chaos in the market, in turn ravaging global energy demand.

Doubts about Spain's ability to meet its deficit goals have been amplified by the plight of Spanish banks, many bogged down in bad loans after a property price bubble collapsed in 2008.

Standard & Poor's on Monday downgraded the ratings of the top Spanish banks, including Santander and BBVA. On Friday it had cut the country's credit rating by two notches.

"Given the size of the Spanish economy, the size of its debt burden and the exposure of banks across the eurozone, for 'Spain in crisis' read 'the eurozone in crisis,'" said PVM Oil Associates analyst David Hufton.

In the United States, the world's biggest oil consumer, there was mixed consumer data for March. The government said growth in consumer spending, the biggest driver of the economy, slowed to 0.3 percent in March, after a 0.9 percent surge in February. Personal incomes rose 0.4 percent.

"The good news in this report is the strength in income and, for the first time this year, growth in income after taxes and adjusting for price increases was in positive territory," said Leslie Levesque at IHS Global Insight.

-AFP/ac