Crude oil futures extend losses on Greek political uncertainty

Investing.com - Crude oil futures held on to overnight losses during U.S. morning trade on Tuesday, as renewed concerns over Greece’s debt woes weighed on demand for riskier assets.

On the New York Mercantile Exchange, light sweet crude futures for delivery in June traded at USD96.71 a barrel during U.S. morning trade, tumbling 1.25%.

It earlier fell by as much as 1.35% to trade at a session low of USD96.68 a barrel. Prices touched USD95.36 a barrel on Monday, the lowest since December 20, 2011.

Oil’s losses picked up speed after Alexis Tsipras, the head of Greece’s second-biggest party Syriza who is in charge of putting together a coalition government, declared that Greece's financial aid package is null and void, and called for a moratorium on Greek debt payments.

Tsipras also called for an international commission to rule on whether Greece's debt is legal.

Market sentiment was already on the back foot, as investors were watching political developments in Greece after the country’ largest party, New Democracy, was unable to reach an agreement to form a government on Monday.

The uncertainty fuelled fears that Greece will not have a government in place in time to secure its next tranche of international aid next month, as new elections look increasingly likely.

The Financial Times reported earlier that New Greek elections could come as early as June 17, if a coalition cannot be agreed in the next few days.

Investors were also jittery amid concerns over new French president-elect, Socialist Francois Hollande who has said he wants to renegotiate the euro zone’s fiscal pact in order to stimulate growth in the region.

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

The euro zone accounted for nearly 12% of global oil consumption in 2010, according to data from British Petroleum.

The heightened sense of risk aversion prompted investors to shun riskier assets, such as stocks and industrial commodities, and flock to the relative safety of the U.S. dollar.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.35% to trade at 79.99.

Prices came under further pressure after Saudi Arabia’s Oil Minister Ali al-Naimi said that his country is storing as much as 80 million barrels of crude to boost global supplies in response to prices that are “still a little bit high.”

Mr. al-Naimi added that the Kingdom was pumping around 10 million barrels of oil per day. Saudi Arabia is the world’s largest oil producer and exporter.

Meanwhile, market participants were awaiting fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of oil demand in the world’s largest oil consumer.

The American Petroleum Institute will release its inventories report later in the day, while Wednesday’s government report could show crude stockpiles rose by 2.0 million barrels last week to the highest level since September 1990, underscoring fears over a slowdown in oil demand from the U.S.

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

Nymex crude prices have come under heavy selling pressure over the past week, losing nearly 9% since May 2, as concerns lingered over a widening economic slowdown that may cut demand for energy and as tensions have eased between Iran and Western nations over the country’s nuclear program.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for June delivery was down 1.05% to trade at 111.97 a barrel, with the spread between the Brent and crude contracts standing at USD15.26.

Brent crude, the European benchmark, is more than 12% off its intraday high of USD128.38 hit on March 1.  

A potential loss of Iranian oil supplies has helped underpin strong gains in oil prices during late last year and the first quarter of this year.

But revived talks between Iran and major powers over Tehran's nuclear ambitions, along with rising Saudi Arabian and Libyan output and signs of slower U.S. economic and employment growth, helped pull oil prices back from first-quarter highs.