Crude oil down on weak euro zone sentiment, strong greenback

Investing.com - Crude oil futures plunged during U.S. afternoon hours Thursday, dropping below USD80-per-barrel as pessimism dominated market sentiment ahead of a highly anticipated European Union summit due to begin later in the day.

On the New York Mercantile Exchange, light sweet crude futures for delivery in August traded at USD78.52 a barrel during U.S. afternoon trade, giving back 2.13%.

Dampening oil sentiment, hopes that European leaders would make headway on dealing with the crisis dimmed after a German government official indicated that the summit would not result in any detailed decisions and warned against high expectations among investors ahead of the conclusion of the summit on Friday.

Earlier in the week, German Chancellor Angel Merkel reiterated her opposition to the idea of joint euro zone bonds, while EU Economic and Monetary Affairs Commissioner Olli Rehn said Wednesday that the summit would focus on short-term measures to stabilize markets and ease pressure on at-risk countries.

Adding to the negative tone, Italy saw long term borrowing costs rose to 6.19%, their highest level since December, following an auction of 10-year bonds, as investor sentiment on the country continued to deteriorate.

Meanwhile, the yield on Spanish 10-year bonds ticked up to 7%, the level that prompted Greece, Ireland and Portugal to seek international bailouts.

There are worries that the region’s worsening sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil. 

Elsewhere, in the U.S., the Department of Labor said number of people who filed for unemployment assistance last week fell by 6,000 to a seasonally adjusted 386,000, compared to expectations for a decline of 7,000 to 385,000.

The previous week’s figure was revised up to 392,000 from a previously reported 387,000.

A separate report confirmed that the U.S. economy expanded at an annualized rate of 1.9% during the first quarter, in line with expectations.

The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for August delivery dropped 0.6% to trade at 92.94 a barrel, with the spread between the Brent and crude contracts standing at USD13.02.

Prices fell to as low as USD88.49 a barrel on June 22, which was the lowest since December 20, 2010.

London-traded Brent prices are down nearly 28% since hitting an intraday high of USD128.38 on March 1, as an escalating debt crisis in the euro zone and worries over a deeper-than-expected slowdown in Chinese economic activity dragged prices lower.

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