BUSINESS

Oil starts week lower on concerns about Spanish banks and European economy

06/25/2012 08:36 EDT | Updated 08/25/2012 05:12 EDT
NEW YORK, N.Y. - The price of oil declined Monday as Spain's banking crisis added to concerns about the troubled European economy.

A tropical storm also moved away from the heart of America's oil production in the Gulf of Mexico, reducing the chances for a sustained disruption in U.S. supplies.

Benchmark U.S. crude fell by 55 cents to end the day at US$79.21 per barrel on the New York Mercantile Exchange. At one point it had dropped to nearly $78 per barrel.

Oil fell after Spain asked for a loan to support its banking sector, which is reeling from a collapse in the country's real estate sector. Spain hasn't said how much it will ask for, though international audits say the banks need $78 billion.

Concerns about Europe's economy have helped cut oil prices by 25 per cent since May 1. Part of the eurozone already is in recession and analysts expect its economy to slow down even more. That will further cut energy demand in a region that consumes 16 per cent of the world's oil. Demand for goods made in the U.S. and China would drop as well.

Meanwhile, tropical storm Debby gave little support to oil prices after it swept through the Gulf of Mexico without seriously hurting production or imports.

The storm did cause a shutdown of about 44 per cent of the Gulf's oil production and 35 per cent of its natural gas production. But by Monday many workers were returning to the 189 production platforms and 22 drilling rigs that had been evacuated.

Independent petroleum analyst Jim Ritterbusch said the impact on production wasn't sustained long enough to affect oil prices. Supplies are at the highest level since 1990. One weekend storm won't make a serious dent, Ritterbusch said.

"We have a nice cushion right now," he said.

Debby moved northeast and its winds weakened overnight to a maximum of about 70 kilometres per hour as it neared the Florida panhandle.

At the pump, U.S. retail gasoline prices fell by four cents over the weekend to a national average of $3.41 per gallon (90 cents a litre), according to auto club AAA, Wright Express and Oil Price Information Service. That's 52 cents a barrel cheaper than the first week of April, when the national average peaked for the year.

In Canada, the price at the pump averaged C$1.227 per litre, down from $1.270 a month ago, according to GasBuddy.com.

In other futures trading, heating oil added less than a penny to finish at US$2.5385 per gallon while wholesale gasoline added 7.59 cents to end at $2.6458 per gallon. Natural gas added 6.9 cents to finish at $2.694 per 1,000 cubic feet.

Brent crude, which helps set the price for oil imported into the U.S., was nearly unchanged, adding 3 cents to finish at $91.01 per barrel in London.

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