Oil jumps as dollar slides versus euro

28th June 2011, Comments 0 comments

World oil prices rallied Tuesday, as traders took their cue from the fading US currency and strengthening equity markets, but gains were capped by caution over the Greek debt crisis.

New York's main contract, West Texas Intermediate for delivery in August, added 91 cents to $91.52 a barrel.

Brent North Sea crude for August leapt $2.20 to $108.19 in late afternoon London deals.

"Crude oil prices continued their upside momentum and climbed higher, supported by a weaker US dollar and a recent rally in the global equity markets," said Sucden analyst Myrto Sokou.

"However ... all eyes remain on the Greek parliament vote on Wednesday that would clarify the current uncertain economic situation in Greece, and thus provide further signs for (the) eurozone's economic stability."

The European single currency climbed against the dollar on Tuesday as the markets waited for this week's make-or-break vote in Athens on the Greek government's latest austerity package.

In late London trade, the euro advanced to $1.4361, up from $1.4277 in New York late Monday.

A weaker greenback tends to boost dollar-priced commodities which become cheaper for buyers using stronger currencies. In turn, that stimulates demand and prices.

Greek lawmakers will vote on Wednesday and Thursday over major austerity plans that are aimed at unlocking 12 billion euros ($17 billion) of funds from the European Union and the International Monetary Fund.

Dealers said the hope is that the Greek debt crisis is finally nearing resolution, one way or the other, although there could yet be more twists before all is done, leaving investors to hedge their bets.

Investors know the stakes are sky high, they said, as failure to pass the measures means Greece will default on its debt, with all that could mean for the eurozone and the wider global economy.

A Greek default risks sparking contagion across the rest of Europe that many fear could affect global financial stability -- and demand for energy.

Oil tumbled last week after the International Energy Agency agreed to draw on emergency reserves to make up for lost Libyan supplies prompting a critical response from OPEC Secretary General Abdullah El-Badri.

"El-Badri has called upon the IEA to stop the release of strategic reserves immediately as there are no sufficient grounds for this measure in his view," Commerzbank analysts said.

"The harsh reaction of the OPEC secretary general suggests that the IEA's decision was not agreed with OPEC. This increases the risk that OPEC members will react by reducing supply should oil prices come under too much pressure.

"Most OPEC members are dependent on higher oil prices because of higher fiscal expenditures," they added.

The IEA unexpectedly announced last Thursday that it would release 60 million barrels of crude from strategic oil stocks over the next month to curb high prices.

The Paris-based body, which represents 28 oil consuming nations, has called for higher OPEC production to prevent high prices from damaging global recovery.

But the Organization of Petroleum Exporting Countries (OPEC), whose 12 member nations pump 40 percent of the world's oil, opted to maintain output levels earlier this month.


© 2011 AFP

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