Oil slips to US$98.3 as dollar index rises on worries of Greece restructuring sovereign debt

16-May-11

Oil prices have slipped to as low as US$98.3 a barrel as the dollar index rose to a six-week high on worries that Greece may restructure its sovereign debt, as per Reuters. Brent crude for June fell to US$113.25 a barrel. Concern over the European economy is weighing on the euro and supporting the dollar. A stronger dollar in turn is weighing on commodity prices. The euro, also dragged down gold and silver, and may test pivotal support areas after IMF chief Dominique Strauss-Kahn was charged with sexual assault, increasing uncertainty on aid for Greece and other indebted euro zone countries. The market waits to see the impact of the euro on the forex market, as well as on commodity prices. Oil and dollar-denominated commodities often move inversely to the dollar and a stronger greenback typically pressures oil. Euro zone finance ministers are likely to back a bailout package for Portugal on Monday, with new conditions set by Finland. The meeting was also expected to pressure Greece to announce more austerity steps to secure further emergency funding. A factor preventing oil prices from sliding further is the ongoing social unrest in Libya and Syria and fears that it may spread to other oil-exporting nations in the region. If NATO manages to oust Gaddafi soon, Libyan supplies may start to return to the market, putting pressure on prices. Participants were also watching the Mississippi flooding situation after the US Army engineers opened a key spillway to relieve flooding along the river. Failing to open the spillway would have put New Orleans at risk of flooding. In addition to threatening densely populated areas, lower Mississippi flooding was a risk for as many as 8 refineries and at least one nuclear power plant. The refineries make up about 12% of the nation's capacity for making gasoline and other fuels. Crude-oil prices settled higher on Friday, staging a comeback in the last hour of floor trading to secure weekly gains of 2.5%, its best since early April. Light, sweet crude for June delivery rose to US$99.65 a barrel on the Nymex.