Wednesday, April 28, 2010

Oil Extends Slump After Greece Ratings Cut, Drop in Equities

April 28 (Bloomberg) -- Crude oil declined for a third day as global equities plunged and the dollar advanced after Standard & Poor’s Ratings Services cut its sovereign credit ratings on Greece to junk.

Oil dropped 2.1 percent yesterday as credit downgrades in Greece and Portugal, the euro region’s most indebted nations, escalated Europe’s debt crisis. The Standard & Poor’s 500 Index fell the most since Feb. 4. Crude supplies in the U.S. rose by 5.34 million barrels last week, according to the industry-funded American Petroleum Institute.

“The ongoing Greece bailout situation is only putting more and more pressure on the euro currency to trade lower,” said Mike Sander, an investment adviser at Sander Capital Advisors in Seattle. “A drop in the equity markets tends to push the price of oil lower. Oil stocks in the U.S. are at very high levels.”

Crude oil for June delivery fell 74 cents, or 0.9 percent, to $81.70 a barrel, in electronic trading on the New York Mercantile Exchange at 8:37 a.m. Sydney time. Yesterday, the contract dropped $1.76 to $82.44.

Greece’s credit rating was cut by three levels to BB+ from BBB+, the first time a euro member has lost its investment grade since the currency’s 1999 debut. S&P also warned that bondholders could receive as little as 30 percent of their initial investment if Greece restructures its debt. The ratings company also reduced Portugal by two steps to A- from A+.

The S&P 500 slumped 2.3 percent to 1,183.71 in New York. The Dow Jones Industrial Average lost 213.04 points, or 1.9 percent, to 10,991.99.

Crude Supplies

A U.S. Energy Department report today will probably show crude inventories climbed 1.05 million barrels, according to the median estimate of 18 analysts surveyed by Bloomberg News.

The report will probably show gasoline inventories gained 800,000 barrels from 225 million the prior week, the survey showed. Stockpiles of distillate fuel, a category that includes heating oil and diesel, likely rose 1.5 million barrels. Refinery operating rates were probably unchanged after five weeks of increases.

The Petroleum Institute collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

The dollar traded little changed at $1.3172 per euro at 8:31 a.m. Sydney time, after gaining 1.6 percent yesterday. A stronger U.S. currency reduces the appeal of commodities as an alternative investment.

Brent crude for June settlement lost $1.05, or 1.2 percent, to $85.78 a barrel on the London-based ICE Futures Europe exchange yesterday.