Oil drops as US, Europe clash over debt crisis

NEW YORK—Oil prices dropped yesterday as the US and Europe clashed over how to handle the debt crisis in Greece. Benchmark West Texas Intermediate crude gave up US$1.44, about 1.6 per cent, to end the day at US$87.96 per barrel in New York. Brent crude lost eight cents to finish at US$112.22 in London. US Treasury chief Timothy Geithner is meeting with European finance ministers in Poland, which may suggest that the US is growing more concerned about Europe’s direction. If the Greek government defaults, there is a potential for an economic ripple effect across the continent that could eventually reach the US.

A weakened global economy drives energy prices lower and the lack of a certainty about Europe has been pressuring the energy sector. Europe consumes about 18 per cent of all crude produced globally. The US is now pushing for a more decisive solution. Yesterday, European leaders pushed back, saying they want to postpone a decision on more Greek payouts until October. “That’s bad news,” independent oil analyst Andrew Lipow said. “The European government can’t agree on how to lend Greece money. They’re not solving the problem.”

There are issues in the US, however, that are pushing down energy demand as well. US refineries will use less oil this month as they reconfigure plants to produce winter fuel blends. Refiners must use a different blend during warm summer months to reduce emissions. Unemployment rates also rose in a majority of states last month, according to the Labour Department, and that will change how consumers behave, and likely how much energy they use. In other commodities trading, heating oil fell 1.57 cents to finish at US$3.0089 per gallon and gasoline futures were flat, finishing at US$2.7841 per gallon.

AP