Oil fell yesterday on the realisation that a short-term fix in Spain won't offer a long-term solution to Europe's debt crisis. A multi-billion dollar bailout loan for Spain's banks generated initial enthusiasm in the global stock, bond and energy markets. But by the close in New York, the good feeling had given way to skepticism. Benchmark oil fell US$1.40 to US$82.70 per barrel in New York. Brent crude, which is used to price international varieties of oil, dropped 81 cents to US$98.66 per barrel in London. The broad S&P 500 stock index fell nearly one per cent. Leaders of European countries agreed over the weekend to lend Spain up to US$125 billion to help its troubled banking system. Spain is the fourth European country after Greece, Portugal and Ireland to request financial help since the debt crisis began.
Oil jumped above US$86 per barrel in trading in Asia. But the relief was temporary, replaced by concern over Spain's ability to repay the money. The potential for Greece to abandon the European current still hangs over the market, as does a deepening recession in Italy. That turmoil, as well as slowing economic growth in China and the US, is reducing demand for oil, gasoline and diesel fuel. It's not yet clear whether Europe's ongoing efforts to put the financial crisis to rest will result in an economic turnaround. Meanwhile, oil supplies continue to build despite ongoing weak demand around the world. US oil production topped six million barrels a day in the first quarter of 2012, which was a 14-year high, according to the Energy Information Administration. Most of the increase was the result of more production in North Dakota, Texas and the Gulf of Mexico. Oil's decline was tempered by date showing China imported nearly six million barrels of crude a day in May. That was about ten per cent more than April and 18 per cent more than a year earlier. China is a huge importer of oil and other commodities. Meanwhile, motorists are continuing to see a steady decline in pump prices. The national average for gasoline fell less than a penny overnight to US$3.54 per gallon, according to AAA, Wright Express and the Oil Price Information Service. That's 19 cents less than a year ago.
