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Thursday, August 2, 2012

Why Crude oil futures drop 8/2/2012

Why Crude oil futures prices drop 8/2/2012 ; Crude oil futures plunged Thursday, after European Central Bank President Mario Draghi disenchanted traders hoping for decisive monetary policy action to manage the debt crisis in the euro zone.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in September traded at USD87.73 a barrel during U.S. afternoon trade, dropping 1.21%.

Igniting the bearish sentiment, ECB President Mario Draghi said the bank may undertake bond purchases in order to bring down the "exceptionally high" borrowing costs of stressed euro zone members, but provided no explicit details on how and when these activities may be carried out.

Draghi added that any such action by the ECB was conditional on euro zone governments experiencing difficulty on bond markets activating the bloc’s bailout funds to purchase government bonds and accepting strict conditions and supervision.

The statement quashed market expectations for bold steps to counter the debt crisis, which have been building since Draghi pledged last week to do whatever is necessary to preserve the euro. Full text Mario Draghi speech august 2 2012

On Wednesday, the Federal Reserve refrained from implementing fresh easing measures following its monthly policy meeting, but the U.S. central bank said economic growth had ‘decelerated’ in the first half of the year and reiterated that it stood ready to provide additional stimulus as necessary.

Oil remained somewhat supported following a report from the U.S. Energy Information Administration on Wednesday showing that oil inventories decreased by 6.5 million barrels last week, far more than forecasts for a decline of 0.7 million barrels and the largest weekly drawdown since December.

Elsewhere Wednesday, the U.S. Congress unanimously approved a new package of sanctions against Iran over its disputed nuclear program, which aim to penalize banks as well as insurance and shipping companies helping Tehran sell oil.

On the London based ICE Futures Exchange, Brent oil futures for September delivery were down 0.38% to trade at USD105.56 a barrel, with the spread between the Brent and crude contracts standing at USD17.98.

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