Oil plunges on strong dollar, profit taking
World oil prices sank in volatile year-end deals on Wednesday, as traders took profits and eyed the strong dollar, new concerns over the eurozone debt crisis and fresh equity falls on Wall Street.
New York’s main contract, light sweet crude for February delivery, known as West Texas Intermediate (WTI), sank $1.98 to $99.36 a barrel.
Brent North Sea crude for February dived $2.16 to $107.11 in volatile late afternoon London trade, ahead of the New Year holiday break.
The European single currency tumbled on Wednesday close to a one-year low, as investors fretted over the eurozone crisis on the eve of Italy’s second bond auctionwithin just two days.
In late afternoon deals, the euro slumped to $1.2941 — which was the lowest point since January 11. It later pulled back slightly.
The stronger greenback makes dollar-denominated crude more expensive for buyers using weaker currencies, like the euro, and this tends to dampen oil demand and prices.
Crude futures also tumbled as Wall Street fell in early deals, snapping a five-day winning streak, with traders uninspired by troubled Italy’s garnering of lower rates in its newest bond auction.
Italy clinched an auction of 9.0 billion euros ($11.8 billion) in six-month bonds at low rates.
But news that eurozone banks deposited a record amount of overnight funds at the European Central Bank on Tuesday showed there were still deep tensions in the single-currency zone.
The oil market also pulled lower as many traders opted to cash in recent gains that were sparked by heightened tensions over key crude producing nation Iran.
Crude futures had rallied on Tuesday after Iran warned that it will try to close the vital Strait of Hormuz in response to further Western sanctions.
However, those concerns have since eased.
“Shutting down the strait… is the last bullet that Iran has and therefore we have to express some doubt that they would do this and at the same time lose their support from China and Russia,” said Petromatrix analyst Olivier Jakob.
The United States warned Iran on Wednesday against any attempt to disrupt shipping in the Strait of Hormuz, after Tehran issued threats over the vital oil route.
“Interference with the transit… of vessels through the Strait of Hormuz will not be tolerated,” said Pentagon press secretary George Little, adding that there had been no sign of hostile action by Iran in the area.
Iranian Vice President Mohammad Reza Rahimi made his threat Tuesday as Tehran conducted naval war games near the Strait of Hormuz, at the entrance of the oil-rich Gulf where 40 percent of the world’s oil transits.
“If sanctions are adopted against Iranian oil, not a drop of oil will pass through the Strait of Hormuz,” Rahimi was quoted as saying by the state news agency IRNA.
“We have no desire for hostilities or violence… but the West doesn’t want to go back on its plan” to impose sanctions, he said.
Several Western states are considering oil sanctions against Iran over its nuclear programme, accusing it of seeking to develop nuclear weapons.
The strait links the Gulf, bordered by petroleum-rich states such as Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, with Oman.