Oil drops on euro zone woes, faded QE3 hopes

Fri Jun 8, 2012 1:17pm EDT
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By Robert Gibbons

NEW YORK (Reuters) - Oil prices fell on Friday in choppy trading as Spain's banking crisis, weak European economic data and diminished hopes for monetary stimulus reinforced concerns about petroleum demand.

Crude futures flirted with their sixth weekly loss as the euro dropped 1 percent after Thursday's three-notch downgrade to Spain's credit rating and on the signs of economic weakness in Italy and Germany. The stronger dollar .DXY added pressure to dollar-denominated oil prices.

Federal Reserve Chairman Ben Bernanke's Thursday appearance before a congressional committee offered little encouragement to investors hoping the Fed would launch a third round of bond buying, or quantitative easing.

"The sell-off was mainly due to market sentiment surrounding Bernanke's speech," said James Zhang, analyst at Standard Bank.

"(Investors) had too high expectations that Bernanke would announce a new round of quantitative easing."

Global equities also felt pressure from the euro zone turmoil that is expected to cause Spain this weekend to request a financial package to prop up its troubled banks, though U.S. stocks managed gains.

U.S. President Barack Obama said on Friday that European leaders face an "urgent need to act" to resolve the region's financial crisis as the threat of a renewed recession there spells dangers for an anemic U.S. recovery.

Brent July crude fell $1.30 to $98.63 a barrel by 1:05 p.m. EDT (1705 GMT), off its low of $97.19. A close above $98.43 is needed to avoid a sixth straight weekly loss, which would be the longest weekly losing streak since 2002.   Continued...

A worker collects crude oil sample at an oil well operated by Venezuela's state oil company PDVSA in Morichal July 28, 2011. REUTERS/Carlos Garcia Rawlins