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Home / Futures Blog / Oil futures drop as euro debt scourge’s appetite carries on

Oil futures drop as euro debt scourge’s appetite carries on

December 14, 2011 by Daniels Trading

The rapidly dropping value of the embattled common currency of the European Union helped pull down crude oil futures on Wednesday, according to Reuters.

The commodities complex was enduring a wide-ranging selloff that was prompted by the sovereign debt crisis' drive toward profound depths – less than one week after the two-day European Union summit in Brussels was supposed to see the creation of a soothing salve that would make the scourge go away.

Also weighing on crude oil prices were concerns about nations of the Organization of Petroleum Exporting Countries being ill-equipped to swiftly intervene to cut down on the production quotas for particular member nations. OPEC came to an accord regarding the placement of a limit on production; that also drove a solid amount of selling.

U.S. government data indicated inventories of the energy commodity dropped earlier this month, but one risk manager told Reuters that will prove to have minimal influence on an already lackluster performing commodity due to the sovereign debt crisis thrashing about relentlessly.

That economic data was "basically in line with consensus estimates and will do little to change the bearish tone set by developments out of Europe," president Chris Jarvis with  Caprock Risk Management in New Hampshire told the news service.

At one point during morning trading in London, the energy commodity plunged 3.62 percent, representing the largest loss in one day since October 17.

But that was short of Wednesday afternoon figures.

At 2:16 p.m. on Wednesday, crude oil futures dropped 4.53 percent, a $4.96 loss to $104.54 per barrel.

The movement by OPEC to establish a ceiling for production pushed production to a maximum that drew OPEC's target closer to present maximums for production, according to Bloomberg.

Just one day earlier, crude oil futures increased 2.4 percent, representing the top climb in nearly one month.

Rafael Ramirez, energy minister of OPEC member nation Venezuela, said OPEC reached agreement on a maximum production of 30 million barrels per day. Ramirez spoke at the OPEC meeting in Vienna on Wednesday.

After supplies of crude oil gained last week, the consumption of gasoline fell, according to the American Petroleum Institute, which is funded by the industry.

While the energy commodity's bearishness resumed, equities also dropped. The shared currency of the European Union touched its lowest level as compared with the U.S. dollar since January.

One commodity strategist opined on OPEC's action, the prospects for early 2012 and the energy commodity's strong performance on Tuesday.

"The production cap seems quite neutral, since demand is likely to be held back by weaker growth in the first half of next year," commodity strategist Filip Petersson with SEB in Stockholm told Bloomberg on Wednesday. "Bullishness from yesterday is dissipating."

Oil & Gas Journal reports Tuesday's climb was partially prompted by incorrect rumors about Iran shutting the Strait of Hormuz. The passageway serves as a vital conduit for the passage of crude oil from Saudi Arabia.

That combined with conjectures about the U.S. Federal Reserve preparing a third round of quantitative easing also proved to be pivotal for the price of the energy commodity, according to an official with an outfit based in Switzerland.

""It was suggested that there was a rumor that the Federal Reserve would announce QE3 or that there was a rumor that Iran was closing the Strait of Hormuz," Olivier Jakob with Petromatrix told Oil & Gas Journal.

But he did warn about relying too heavily on rumor, also noting that the U.S. Navy indicating no trouble in the strait did not prompt any correction to the price of oil.

Such was also the case when the U.S. Federal Reserve noted no additional round of quantitative easing would ensue.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Filed Under: Archived News

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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