Miguel Fernandez Ordonez, governor of the Bank of Spain, said results of the European bank stress test were overly pessimistic and no Spanish lender needs to increase capital, even though five of the eight banks that failed the test are based in Spain. (image: pe.com and Nicholas Whitaker for HeatingOil.com)
News that Europe’s debt problem is worsening and possibly spreading fueled worries of a global economic crisis and pushed oil prices lower on Monday. Lagging economic trends often mean weak oil demand, leaving investors noticeably uninspired. Heating oil fell four cents while crude dropped $1.31 to settle at $95.93 a barrel on the NYMEX.
After days of heavy focus on U.S. economic indicators, strategists were alarmed by last week’s stress test of several major European banks. The goal of the test was to restore confidence in Europe’s financial sector by identifying its weakest banks and imploring them to raise capital. Eight of 90 banks failed the assessment, news that caused the euro to slump to its weakest level in nearly a week. Analysts voiced concern that economic growth for the entire continent could remain weak for some time, and many are fearful of a default by Greece. However, consistently strong demand from the expanding Chinese economy should balance the scales to some degree.
Analysts expect focus will shift back to U.S. economics later in the week, as lawmakers must decide whether or not to raise the $14.29 trillion debt ceiling by August 2nd. Though the decision isn’t directly linked to heating oil pricing, it could impact the strength of the dollar – an important factor since oil futures often mimic currency trends. If President Obama and Congressional leaders fail to establish an agreement, traders will likely shy away from riskier commodities in favor of more secure bets.
The average retail heating oil price in the Northeast is four cents lower than Monday’s average price.
