In addition, the MF Global (MF) debacle, freezing traders out of the markets or keeping them on the sidelines, led to thinner trading volume, and exaggerated the jolt lower earlier in the day.
West Texas Intermediate (WTI) light sweet crude oil for December delivery fell $1 to settle at $92.19 a barrel Tuesday after trading as low as $89.17 during the day. The December Brent contract fell 29 cents to $109.27 a barrel, after dipping to an intraday day low of $106.24 a barrel.
The move comes as hopes for a road leading to a genuinely healed and unified Eurozone fell into disarray following Greece's surprise call for a referendum on its eurozone bailout package.The euro was falling 1.1% against the dollar -- in stark contrast to its big rally last week -- pressuring U.S.-denominated oil prices. "This referendum really shook the markets," said PFGBest senior energy analyst Phil Flynn. Now, "we will have more uncertainty not less." Now, with no end seemingly in sight for the prolonged eurozone drama, Fellon- McCord senior vice president Brian Habacivch points out that the underlying, root issue behind it all is "there's no controlling law that binds agreements. There's no federal law in Europe -- and that's the heart of the problem." In Habacivch's view, the euro's slow descent began years ago when the European Union failed to ratify a unifying constitution. "It was a slow wound that's been festering for years now," he said. Indeed, a festering wound is how many market observers would describe the eurozone woes, and they believe that leaders will eventually have little choice but to approach the deeply complex problems through band-aid measures -- temporarily fending off an even deeper crisis down the road. Echobay Partners' managing partner Vince Lanci, for one, believes that eventually, European leaders resort to dealing with the region's debt problems by printing more money. "In the end," he says, "European debt will all be monetized on the backs of the taxpayer. Money will be printed, currencies will be devalued" -- putting off the "domino" of sovereign defaults staring with Greece. The consequences of such a move would likely be the fomenting of inflationary conditions in Europe. OptionsXpress analyst Michael Zarembski right now is seeing WTI support and resistance levels at $89.15 and $94.65 a barrel. Matt Smith, commodity analyst at Summit Energy, a subsidiary of Schneider Electric agrees that $90 is the key psychological level for WTI. Meanwhile, Schork Report analyst Hamza Khan, continues to look for support at the 50 and 100-day moving averages of $86.18 and $89.528 a barrel. For now, both Khan and Zarembski are mildly concerned about an actual default of Greek debt. The respective analysts, on a scale of one to ten, put the likelihood of such an occurence at 3 and 4. "I do believe that some sort of haircut will be taken on the debt, but I do not see a total downward spiral occurring," says Zarembski. "I'd put the risk of Greek default at 3," adds Khan. "It's unlikely" to occur he says, "but still possible." Brushing aside today's "vicious" sell-off across the markets, Smith is trying to take a more tempered view of the entire situation. "There are no doubt behind-the-scenes discussions going on to address the announcement -- from European leaders to the Greek government," he explained. Energy stocks lost ground Tuesday. EOG Resources (EOG) tumbled 4.1% to $85.77; Triangle Petroleum (TPLM) slumped 5.9% to $5.31; Suncor Energy (SU) lost 4.2% to $30.48; Apache (APA) gave back 4.7% to $94.97; Anadarko Petroleum (APC) fell 0.6% to $78; Chevron (CVX) tumbled 2.3% to $102.64; and Exxon (XOM) lost 2.5% to $76.15. -- Written by Andrea Tse in New York.
>To contact the writer of this article, click here: Andrea Tse.
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