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Falling oil prices goes hand in hand with falling global economy

Jennifer Dimaano

oil exports map

Oil goes down and so does euro zone

Falling oil prices at almost $2 a barrel create concern about Spain’s banking crisis. Prospects of creating a monetary stimulus were undermined by U.S. central bank.

Rating agency Fitch downgraded Spain’s rating. Now, Spain is expected to request European aid for its banks, making it the fourth and biggest country to seek help since the euro zone debt crisis began.

Oil analyst, Thorbjoern Jensen stated, “The major issue is Spain’s downgrade yesterday and whether or not they will agree to a bailout at the weekend meeting or wait until Spain completes an audit of its banking system.”

“Oil is falling with the greater risk of a country exit from the euro zone rather than for fundamentals.” 

Spain’s Economy Ministry will be conducting its first independent audit of its banking system that will be completed by June 21. The audit will detail how much extra capital it requires.

According to Reuters, Brent crude for July was down by $1.91 to $98.02 a barrel by 1449 GMT after hitting a low of $97.19.

U.S. crude prices were off $1.88 at $82.94 a barrel, having touched a low of $82.00.

Brent prices were at a record high of $128 barrel in March due to the troubles in the euro zone overshadowing the tension between OPEC and the West. In April, German exports and imports fell. Around midday, top European shares were down 0.6 percent.

As for the global economy, Ben Bernanke, Federal Reserve Chair, gave a little encouragement to investors in hopes the Fed would launch a third round of bond buying.

“The sell-off was mainly due to market sentiment surrounding Bernanke’s Speech,” stated James Zhang a Standard Bank analyst.

The latest trade data from the U.S. international trade showed signs of the global economy slowing and affecting the world’s largest consumer.

A surprising interest rate cut by China, the world’s second largest economy and oil consumer—but short-lived. “Nobody will want to take long positions ahead of the weekend with a meeting take place on Spain’s banks and new Chinese data due to emerge,” Zhang said.

Concerns over the impact of lost Iranian crude exports once the July 1 embargo comes into effect are also easing.

Oil officials and executives, including the heads of Total, Royal Dutch Shell and Algeria’s oil minister, said this week that the global oil market is well supplied and can cope with the loss of Iranian crude.

Furthermore, the United States is expected to announce a new list of countries that will receive exemptions to financial sanctions on oil trade with Iran.

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