Oil slumps on Greek referendum shock

1st November 2011, Comments 0 comments

Oil prices tumbled Tuesday after Greece shocked traders by calling for a referendum on its EU bailout deal, raising tensions in the eurozone debt crisis which threatens to hit energy demand, traders said.

New York's main oil contract, light sweet crude for delivery in December, dived $3.07 to $90.12 per barrel.

Brent North Sea crude for December sank $2.67 to $106.89 a barrel late afternoon trade in London.

Crude oil suffered heavy falls, in line with plunging world stock markets and a falling euro, as dealers fretted over a potential Greek default that risks sparking debt contagion and fresh recession.

"The global macroeconomic outlook is rather chaotic after the announcement of a Greek referendum that caused multiple shocks to the global equity and commodity markets," said Myrto Sokou, analyst at the Sucden brokerage.

"The euro received further pressure amid serious concerns about the stability and future of the eurozone, while global equity markets report heavy losses.

"In the meantime, the US dollar continues to strengthen and weigh further in crude oil prices, while news that MF Global filled for Chapter 11 yesterday hurt risk appetite and prompted investors to a heavy sell-off."

Greek Prime Minister George Papandreou announced on Monday a confidence vote and a referendum on last week's EU debt deal, taking a political gamble in an attempt to silence growing opposition to his policies.

The news sent shockwaves through markets because an adverse result in either process would scupper the EU deal, which is designed to cut Greece's debt load of over 350 billion euros ($495 billion) by about 100 billion euros.

"The need for a vote of confidence for the proposed eurozone solution in Greece is ... very unnerving for investors and even more so the call for a referendum in January," said oil analyst Bjarne Schieldrop at Swedish bank SEB.

"Further eurozone progress could be put on hold awaiting the Greek referendum," he told AFP. The confidence vote was expected on Friday.

The oil market was also rocked by weak manufacturing data from top energy consuming nation China.

Official data showed that growth in China's manufacturing activity slowed in October following a sharp fall in export orders, as US and European economic woes hit demand for Chinese goods.

The official purchasing managers' index (PMI) -- based on a survey of 820 manufacturers -- dropped to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement.

A reading above 50 indicates the sector is expanding, while a reading below 50 suggests a contraction.

Oil prices were also falling after US brokerage firm MF Global filed for bankruptcy overnight, following a string of losses from its European public debt holdings.

In a further gloomy development on Tuesday, the yield on Italian 10-year government bonds rose close to a record high, pressured by concerns that Italy could be dragged further into the region's worsening debt crisis.

Oil had rallied last week after a breakthrough eurozone rescue deal was clinched in Brussels. But investor euphoria has since evaporated.

© 2011 AFP

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