Oil prices sink on Greek concerns, strong dollar

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World oil prices sank on Wednesday, shaken by the Greek crisis and the strengthening US currency, traders said.

London's Brent North Sea crude for June fell 48 cents to 85.30 dollars per barrel.

New York's main contract, light sweet crude for June, also slid 48 cents to 81.96 dollars.

Crude futures had plunged lower on Tuesday on heightened concerns about a Greek financial crisis after its debt was slashed to junk status, fanning fears of a default.

The oil market was "sharply pressurised by rising concerns over Greece's debt problems," said analysts at Barclays Capital.

A fierce global equities sell-off began Tuesday after ratings agency Standard & Poor's cut Greek debt to junk, while a downgrade to Portugal also stoked concerns about a widening eurozone crisis.

In the foreign exchange market on Wednesday, the European single currency plunged to 1.3143 dollars -- a low last seen in April 2009.

A stronger US currency makes dollar-denominated crude oil more expensive to holders of weaker units, dampening demand and leading to lower prices.

"S&P's cutting Greek sovereign debt to junk status, along with their downgrading of Portugal's rating, sent shivers through the euro against other currencies and global markets, with all the expected consequences," said PVM oil analyst Philip Wiper.

"Stock markets worldwide fell more than two percent (on Tuesday) and oil prices inevitably went with them."

Greece faces a May 19 deadline to repay nine billion euros (12 billion dollars) in maturing debt. The downgrade by credit ratings agency Standard & Poor's effectively shuts down its access to private capital.

Oil investors are also looking to the results of a US Federal Reserve board meeting on whether or not to raise its main interest rate, as well as the weekly energy inventories report by the US Department of Energy (DoE).

The DoE report, to be released later Wednesday, is closely watched because it gives an indication of demand in the United States, the world's biggest economy and the largest energy consuming nation.

© 2010 AFP

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