Spanish Downgrade Weighs On Crude

Published on Tuesday, 29 May 2012 18:03 Written by Todd Shriber

As Spain, the Euro Zone’s fourth-largest economy continues to have the look of Europe’s next problem child after Greece, oil traders aren’t looking to the upside and that much was evident on Tuesday. Following the long weekend, NYMEX-traded crude for July delivery slid 16 cents to settle at $90.70 a barrel. In London, Brent crude for July delivery lost 34 cents to close at $106.77 per barrel. The U.S. dollar was lethargic on the day as the PowerShares DB US Dollar Index Bullish (NYSE: UUP) absorbed a small loss.

Also weighing on oil futures was yet another downgrade to Spain’s credit rating. Ratings agency Egan-Jones, arguably the only ratings firm that’s ever ahead of the curve rather than behind the proverbial eight ball, lowered Spain's credit rating for the third time in less than a month. As a result, the iShares MSCI Spain Index Fund (NYSE: EWP) lost almost 4% on volume that was better than double the daily average.

U.S. economic data news was less than supportive of upside in oil today. In economic news, the Conference Board said consumer confidence fell to 64.9 in May from a revised 68.7 in April. Economists expected a reading of 70. The drop was the largest since October 2011. Remember, it is the consumer of that drives two-thirds of GDP in the U.S., the world’s largest oil consumer.

Russia’s Lukoil (PK: LUKOY), that country’s second-largest oil company said its first-quarter net profit rose to $3.8 billion from $3.5 billion a year earlier. Revenue increased to $35.3 billion from $29.6 billion. Production slipped 0.7% to 2.2 million barrels of oil equivalent.

Speaking of Russia, more trials and tribulations in that country explain why BP (NYSE: BP) closed lower on the day. Russian oligarch Mikhail Fridman resigned Monday as head of TNK-BP, the joint Russian venture in which BP owns half, casting a pall over the future of BP’s already tenuous ability to do business in oil-rich Russia. The news is the latest in what has been a tricky 18 months of Russian dealings for BP, Europe’s second largest oil company.

U.S. stocks closed sharply higher on the day, but Exxon Mobil (NYSE: XOM) took a small loss. On the other hand, rival Chevron (NYSE: CVX) jumped 1.3% on light volume. Natural gas futures tumbled sending the United States Natural Gas Fund (NYSE: UNG) to a loss of 4.5%, indicating some of the wind may be coming out of the sails of what has been one of the best-performing ETFs over the past month.

Apache (NYSE: APA) and Anadarko Petroleum (NYSE: APC) both notched their best days in what feels like weeks, jumping 2% and 2.2%, respectively.