Ongoing concerns with the sovereign debt crisis dragged down crude oil futures on Monday and some analysts wonder about the long-term impact of the crisis on the energy commodity, published reports state.
Following an auction of five-year Italian government bonds on Monday, borrowing costs went up in the Mediterranean nation, according to Bloomberg. Italy sold the equivalent of $4.1 billion-worth of bonds, the top amount sold in more than 14 years.
In turn, oil futures dropped 0.9 percent, representing an about-face. The energy commodity had gained in value on the excitement and optimism of Mario Monti being appointed prime minister by Italy's president on Sunday. The appointment initially served as a refresher as optimism abounded regarding Italy's serious efforts to come to terms with the debt scourge tearing through the euro zone.
But then the brilliant luster wore off, taking with it some of the energy commodity's value.
"There's a growing realization that reform in Italy won't occur overnight," president Michael Lynch with Strategic Energy & Economic Research in Eastern Massachusetts told Bloomberg. "The Italian economy and political system have been confounding experts for a long time."
Thus far this year, crude oil futures have climbed more than 7 percent. The energy commodity's price gained 5 percent last week and is running a weekly gain streak of six weeks. That show of success is the top performance of crude oil futures since early 2009.
"The euro is getting really beat up today," president Stephen Schork with Schork Group in Pennsylvania told Bloomberg. "The situation both in Europe and here is still uncertain. This market has rocketed higher recently, reaching levels that are hard to justify and will harm economic growth."
Dow Jones Newswires reports the euro weakened against the U.S. dollar because of deep concerns about what will be accomplished by the new government leadership in Italy and Greece. Strong doubts remain over their ability to solve the scourge and prevent it from causing more damage in the near-term.
U.S. inventories of crude oil have fallen beneath levels from one year prior yet they remain above the average level from the past five years when considering both volume of the commodity and when compared with demand by refiners.
"We've been very over-extended as [oil] cruised through $95 and up toward $100 and we could be headed for a move back to sub-$90," broker and analyst Gene McGillian with Tradition Energy told Dow Jones Newswires. "But, if we don't hear any real dire news from Europe about a recession that's going to impact the whole global economy, then we could still see another fourth-quarter rally."
Regarding the longer term, President Andy Lipow with research firm Lipow Oil Associates of Houston told Dow Jones Newswires he believes the curve will straighten.
The instability of the euro zone will prompt additional supplies to arrive in the U.S. in 2012 while members of the U.S. Congress fight among themselves over balancing the domestic budget, Lipow said. Macro issues will prove to be burdensome for the market.
"I just think these things are hurting crude," he said. "I think the big picture is going to be the debt issues around the world, and how that plays out with the crude oil markets as well as the rest of the commodity markets."
The Economic Times reports crude oil futures contracted on Monday in part because industrial production in the euro zone was lessening, which suggests the onset of a recession.
August to September saw a 2 percent production slide in the 17-member euro zone, according to The Economic Times.
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