Despite solid figures on the US economy last week, oil took a pounding as investors abandoned the commodity and sought safety.
The flow of data from the US economy last week was solid with industrial production, retail sales and consumer confidence all rising in April.
In fact the news on Friday would have normally been bullish enough to offset the poor weekly US stocks report, but it wasn’t.
So global oil prices fell again on Friday on the continuing fears for Europe and the euro.
Oil finished down by almost 5% for the week and the euro fell against the greenback by about the same amount.
News flow on demand and supply have been ignored as speculators abandon risk (oil, commodities and the euro) and head for the safety of the US dollar and US securities, or yen.
That’s why the US dollar finished near 18 month highs against the euro and the Australian dollar lost ground on Friday night to end around 88.50 USc.
The euro fell to a low of $US1.2359 against the dollar on Friday, its weakest level since November 2008.
That took the single currency’s losses to 5% for the week since hitting an intraday high of $US1.3093 on Monday in the euphoria after the 750 euro billion rescue plan was announced.
In fact a price move of equal significance was the sharp fall in US bond yields, with the 10 year yield ending around 3.44% on Friday night, from 3.54% on Thursday.
Apart from the plunge on May 6 when the black hole opened up under equities, US 10 year bond yields haven’t been as low this year.
Claims by some newsagencies that the US markets overcame nervousness about Europe thanks to the solid flow of economic data was nothing but hype.
If the market had been convinced the recovery story was stronger than the euro, then oil would not have fallen Friday and gold would not have continued to trade near all time highs.
So oil fell more than 3% to a three-month low on Friday, dropping for a fourth straight day on continuing fears about Europe and the euro.
Not helping sentiment were silly reports that Germany would go off the euro and return to the Deutschemark tonight, our time.
Paranoia and fear are rampant in Germany at the moment.
The euro plunged to an 18-month low against the US dollar as investors worried that spending cuts in countries like Greece, Spain, Portugal and the UK (and to be followed by other countries such as Germany) may kill off the already weak recovery in the 16-country eurozone.
June crude fell $US2.79, or 3.75%, to settle at $US71.61 a barrel, the lowest close since February 5.
Friday’s intraday low of $US70.83 was the lowest price for the current month since February 8.
For the week, June crude fell $US3.50, or 4.7%, taking the two week drop to 17%, or $US14.54.
That was the largest two week fall since January of last year in the depth of the slump.
Complicating matters was the expiry tonight, our time, of the May contract which always brings with it increased price volatility.
June contract options also expire tonight.
In London, ICE Brent June futures fell $US1.93 to settle at $US77.18 a barrel on the day the contract expired.
That’s probably a more accurate real market price for oil at the moment because New York prices are being pressured by rising stockpiles of crude at Cushing and Oklahoma, the delivery hub for the WTI contract.
That is driving the current month price lower relative to more distant contracts, or the contango.
The International Energy Agency last week trimmed its 2010 global oil demand forecast by 50,000 barrels a day to 1.62 million bpd.
The IEA said the Greek debt crisis could dent oil consumption if it spreads to other countries such as Spain, Portugal and Italy.
