MARKET WATCH: World economy continues undercutting energy prices

Oil markets were under pressure and energy losses generally accelerated June 8 ahead of a critical Euro-zone meeting over the weekend.

However, much of the intraday loss was recovered before markets closed as investors holding short positions scurried to obtain cover prior to the European meeting, said James Zhang at Standard New York Securities Inc., the Standard Bank Group. Reformulated stock for oxygenate blending (RBOB) gasoline and heating oil actually posted small gains.

Zhang reported, “Time spreads in Brent and West Texas Intermediate were softer June 8, aligned with the move in flat prices.” In the options market, implied volatility rose.

In Houston, analysts with Raymond James & Associates Inc. said Spain on June 9 became the fourth country “from the periphery” to ask the European Union for bailout funds ($125 billion) for its ailing banking sector. “But will a ‘show me the money’ policy continue to keep the market afloat?” the analysts wondered. “With China reporting weaker industrial production and Greek elections still unresolved, we're not so sure.”

They noted, “Equity indices were able to close out their best week of the year with the Dow Jones Industrial Average finishing up 3.6%. The broader market seems poised to compound those gains today as further Euro-zone easing continues to prop up market futures.”

The Associated Press reported June 11 investors had begun to question the mechanics of the loan package obtained by Spain and whether that country can manage the extra debt or will be forced to ask for more help.

The bailout was portrayed by government officials as part of their efforts to contain Europe's widening recession and financial crisis that have adversely affected companies and investors around the globe. Spain’s economy is the fourth-largest in the 17-member Euro-zone.

“Investors appear to be growing increasingly concerned that by taking on so much new debt via the rescue package Spain's ability to make interest payments on its debt could be strained dangerously,” AP reported.

Energy prices

The July contract for benchmark US light, sweet crudes continued to retreat June 8, down 72¢ to $84.10/bbl on the New York Mercantile Exchange. The August contract dropped 74¢ to $84.39/bbl. On the US spot market, WTI at Cushing, Okla., was down 72¢ to $84.10/bbl in step with the front-month futures contract.

Heating oil for July delivery increased 0.5¢ to $2.67/gal on NYMEX. RBOB for the same month inched up 0.02¢ but closed essentially unchanged at a rounded $2.69/gal.

The July natural gas contract rose 2.5¢ to $2.30/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 7.6¢ to $2.24/MMbtu.

In London, the July IPE contract for North Sea Brent retreated 46¢ to $99.47/bbl. Gas oil for June dropped $13.25 to $845.50/tonne.

The average price for OPEC’s basket of 12 benchmark crudes decreased $1.83 to $95.87/bbl. So far this year, OPEC’s basket price has averaged $114.60/bbl.

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