May 16, 2012 / 2:27 AM / 5 years ago

Oil falls as equities dip on Greek, euro zone woes

Gasoline drips off a nozzle during refueling at a gas station in Altadena, California March 24, 2012. Picture taken March 24, 2012. REUTERS/Mario Anzuoni

NEW YORK (Reuters) - Crude oil futures tumbled on Wednesday, pressured along with U.S. equities as banking troubles in Greece sparked risk aversion across markets worried about euro zone debt.

The European Central Bank confirmed a Reuters report that it has stopped providing refinancing to some Greek banks as they are severely undercapitalized. The news pressured Wall Street and oil, as the dollar surged against the euro.

The ECB move erased a morning uptick in oil prices after U.S. data showed domestic crude stockpiles rose much less than what an industry group reported late on Tuesday. <EIA/S>

Uncertainty in Greece, already shaken by the inability of politicians to form a government, pulled the euro to a four-month low against the U.S. dollar while Wall Street dropped in choppy trading. That, in turn, provoked a further sell-off in oil futures.

“The S&P 500 turned negative, deepening the weakness in the stock market on concerns about Greece and that has speeded up the pace of oil’s slide today,” said Mark Anderle, trader at TAC Energy in Dallas.

Also keeping oil prices lower was news that U.S. President Barack Obama was expected to seek support on Saturday from other Group of Eight leaders to tap emergency oil reserves later this summer before the European Union’s July embargo of Iranian crude, the Kyodo news agency reported.

The White House declined to comment on the report.

In London, ICE Brent for June delivery expired and settled at $111.71 a barrel, down 53 cents, after volatile trading between $110.41 and $112.10. Front-month Brent fell for the fourth time in five sessions.

The July Brent contract closed at $109.75, dropping $1.70.

Falling for the fourth straight session, U.S. June crude settled at $92.81, down $1.17, the lowest front-month settlement since November 2. It fell to $91.81 early, the lowest intraday since November 3, and rose as high as $94.16.

Trading volumes rose above 600,000 contracts for both markets, with Brent posting a 17 percent rise above its 30-day average, according to Reuters data. U.S. crude volume was up 10 percent above its 30-day average.

Brent’s premium against U.S. crude climbed in the session to more than $19, the widest since April 10, before closing at $18.90, up from $18.26 on Tuesday.

The wider spread emerged as the weekly report from the U.S. Energy Information Administration showed that crude stocks at the Cushing, Oklahoma, delivery point for U.S.-traded crude, rose 1 million barrels to a record 45.13 million barrels.

Traders are anticipating that the reversal of the Seaway pipeline’s flow directly from the delivery hub to Houston in the main U.S. refining center in the Gulf Coast that is set for Thursday would help ease the oil glut in the Midwest and strengthen U.S. crude prices, resulting in a narrowing of the spread. <ID: nL1E8GG2GD>

U.S. oil prices briefly swung into positive territory, recovering from session losses of more than $2 after the EIA data showed that crude stocks rose 2.1 million barrels, to 381.6 million barrels, last week, far less than the 6.6 million barrel build shown in the American Petroleum Institute’s report on Tuesday and closer to analysts’ forecasts. <EIA/S>

U.S. crude inventories are brimming as stocks have risen eight straight weeks to hit the highest level in 22 years, according to EIA data.

Bigger-than-expected drawdowns in U.S. gasoline and distillate stockpiles were seen supportive initially as four-week average demand rose above last year’s level for the first time this year, the EIA data showed.

But as the trading session neared the close, weakened technical support prompted a flurry of selling of U.S. heating oil and gasoline futures, said TAC’s Anderle.

U.S. June gasoline settled at $2.9209 a gallon, falling 2.32 cents, the lowest close for front-month RBOB since February 3. June heating oil finished at $2.8976, dropping 3.54 cents, posing the lowest close since December 28.

Additional reporting by Robert Gibbons in New York, Jessica Donati in London; Editing by Marguerita Choy, M.D. Golan, Sofina Mirza-Reid and David Gregorio

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