Crude oil drops to 6-week low on Greece, U.S. demand concerns

Forexpros - Crude oil futures were down on Thursday, dropping to a six-week low as concerns over the risk of a default by Greece and indications U.S. oil demand was slowing weighed.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in March traded at USD96.72 a barrel during U.S. morning trade, dropping 0.91%.

It earlier fell by as much 1.2% to trade at USD96.30 a barrel, the lowest since December 20.

Concerns over a possible Greek debt default escalated after Eurogroup head Jean-Claude Juncker said earlier that talks with private bondholders on a debt swap deal for Greece were “ultra-difficult”.

Earlier in the week, European officials indicated that negotiations with Greece’s private creditors were almost concluded.

An agreement is necessary for Greece to secure the next tranche of bailout funds in order to prevent a sovereign debt default, as the country does not have enough money to cover a EUR14.5 billion bond repayment due March 20.

Euro zone developments have dominated trading in the oil market for the last several months, amid worries that the sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil.

The concerns pushed the euro down against the U.S. dollar, while the dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.1% to trade at 79.11.

Oil prices typically weaken when the U.S. currency strengthens as the dollar-priced commodity becomes more expensive for holders of other currencies.

Meanwhile, that U.S. oil demand is slowing also added to the selling pressure. Government data on Wednesday showed that U.S. crude supplies rose by a more-than-expected 4.2 million barrels last week.

Total motor gasoline inventories increased by 3.0 million barrels, significantly higher than expectations for a 1.0 million barrel gain. According to the U.S. Energy Information Administration, U.S. gasoline demand fell to the lowest level since September 2001 last week.

Prices remained lower despite a report showing that the number of people who filed for unemployment assistance in the U.S. last week fell by 12,000 to a seasonally adjusted 367,000, beating expectations for a decline to 373,000.

The U.S. is the world’s largest oil consuming nation, accounting for nearly 22% of global oil demand.

Oil traders shrugged off concerns over a disruption to crude supplies from Iran. Leading U.S. lawmakers were considering adding measures to a new package of sanctions that would single out Iran's national oil and shipping companies and restrict its ability to tap into electronic banking services.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for March delivery rose 0.37% to trade at USD111.97 a barrel, with the spread between the Brent and crude contracts standing at USD15.25 a barrel, the largest premium since November 14.

According to Wall Street lender Citigroup, the premium Brent crude commands over NYMEX crude is set to widen to USD20 a barrel, as increased oil production in North Dakota and stock builds at the U.S. benchmark's delivery point of Cushing, Oklahoma pressure NYMEX oil.

The gap between the two contracts widened to a record USD27.88 a barrel back in October 2011.

Brent prices have outperformed crude in recent sessions amid concerns over a disruption to supplies from African producers, Nigeria and South Sudan.

Nigerian security forces arrested the alleged spokesman of a militant Islamist group blamed for bombings and gun attacks that killed hundreds this year. Nigeria is Africa’s largest oil producer.

Meanwhile, a dispute between Sudan and South Sudan on oil transit fees dragged on. The newly independent South Sudan has shut its production estimated at 350,000 barrels per day.