LONDON—Crude-oil futures rose around 2% in Europe Tuesday on gains in equities and a weaker dollar, but trading volume was light partly because many traders were away for an industry gathering in London.
Market participants remained cautious, due in part to uncertainty caused by debt problems in Greece and concerns over the fiscal health of some larger European countries. News of economic weakness from the euro zone will reduce risk appetite and boost the dollar, putting pressure on crude oil futures, analysts said.
The front-month March light, sweet, crude contract on the New York Mercantile Exchange was trading $1.23 higher at $75.36 a barrel. The front-month April Brent contract on London's ICE futures exchange was $1.51 higher at $74.02 a barrel.
European Union finance ministers, who began two days of meetings in Brussels Monday, have given Greece one month to show it can address its debt issues before demanding that further austerity measures are implemented, though Greek officials continue to resist introducing any such measures until the middle of March, when the EU is due to scrutinize the country's deficit-reduction plans.
The euro rallied Tuesday against the dollar, but its gains were limited by uncertainty over the EU meeting, while other high-risk currencies, such as the Australian dollar, staged a larger rebound against the U.S. dollar. The latest minutes from the Reserve Bank of Australia suggested further rate increases and an NAB business survey showed a healthy jump in confidence.
Regarding oil fundamentals, demand is weakening as the second-quarter refinery maintenance season approaches. Some new supply, such as Pacific-loading ESPO crude, also curbed demand for European crude oil.
Monday, Russian Urals was sold at a discount of $1.25 to Dated Brent, the lowest level since May 2009, as "pressure came from anemic refinery run rates in the Mediterranean, currently around 70% of capacity", said Vienna-based consultancy JBC Energy.
Furthermore, refineries are planning more closures, faced with narrowing refining margins. In Japan, Tokyo-based refiner Showa Shell Sekiyu K.K. said Tuesday it will scale down its crude oil refining capacity by more than 20%, as demand for petroleum products continues to slow. The latest refining cutback came after Nippon Oil Corp. and Nippon Mining Holdings Inc. decided to cut back about 30% of their combined capacity by March 2015.
With demand from developed countries sluggish, more attention is trained on China. Some traders were concerned that tightening monetary policy in China will damp the country's oil demand, but other analysts think the market has overreacted.
"The world's second-largest energy consumer is still going to see a substantial energy demand increase this year and its growth will occur regardless of the government's attempts to curtail lending," said Andrey Kryuchenkov, vice president of commodities research of VTB Capital.
Elsewhere, the ICE's gasoil contract for March delivery was up $13.00 at $597.00 a metric ton, while Nymex gasoline for March delivery was up 2.45 cents at $1.9540 a gallon.
