No Spain Bounce For Oil

Published on Monday, 11 June 2012 19:38 Written by Todd Shriber

Oil futures were trading higher overnight on news that Spain will get $100 billion to bailout its crumbling banking system, but the good cheer didn’t carry over to Monday’s session. Enthusiasm for the Spanish bank bailout quickly waned as traders started to speculate the assistance needed for Spain’s banks could portend a larger, far more costly bailout of the entire country. That speculation sent NYMEX-traded crude for July delivery down $1.40 to $82.70 a barrel. In London, Brent for July delivery dropped $1.47 to settle at $98 a barrel.

Intraday swings on both contracts were sizable as Brent traded as high as $102.21 and West Texas Intermediate traded as high as $86.64. The PowerShares DB US Dollar Index Bullish (NYSE: UUP) finished the day with a small gain of just 0.13% on light turnover.

China’s oil imports rose to a record 25.48 million tons in May, an increase of 6 million barrels per day, but even that data point wasn’t enough to support oil on Monday and that’s despite the fact that China is the world’s second-largest oil consumer behind the U.S.

Ahead of its meeting in Vienna later this week, OPEC said it could cut output to stem the tide of falling prices, but the 12-nation cartel cautioned that it isn’t likely to set individual quotas for its member states. OPEC frequently uses quotas to keep its members from flooding the market with excess supply, but in an era of high oil prices, those quotas are often violated.

Goldman Sachs (NYSE: GS), the venerable Wall Street bank, sounded a bullish tone on oil today, saying that once oil’s strong fundamentals are again acknowledged and hedge funds and other speculators come back into the market on the long side, the factors will be in place for an oil rally.

"Even against other assets, the selloff in commodities was exceptionally extreme, as the liquidation of length in the broad oil market, which started from relatively high levels, was the second-largest monthly decline on record," Goldman said in a research note, Reuters reported.

Those comments weren’t enough to lift oil equities in the face of a sizable decline for U.S. stocks. Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) both finished the day in the red. BP (NYSE: BP) gained half a percent, but rival Total (NYSE: TOT) lost three-quarters of a percent.

The real weakness among energy equities was seen in the coal patch. Shares of Alpha Natural Resources (NYSE: ANR) plunged more than 9% on news it will idle four Kentucky plans and slash production at several others in the state. That stock closed at an all-time low while Consol Energy (NYSE: CNX) and Peabody Energy (NYSE: BTU) closed at multi-year lows.