Crude Futures Tumble on Italy, Spain Downgrade

U.S. crude turned negative after ratings agency Fitch downgraded the credit ratings of Italy and Spain on Friday, intensifying worries that the euro zone debt crisis would hurt global energy demand.

AP

Fitch downgraded Italy's rating, saying the outlook on its long-term ratings is negative. The agency also cut Spain's rating, citing risks of slow growth and high regional debt.

In the New York Mercantile Exchange, crude for November delivery [CLCV1  82.98    0.39  (+0.47%)   ] was down 56 cents, or 0.68 percent, at $82.03 a barrel, having falling to a session low of $81.66, down 93 cents.

Prices rose earlier to the session high $84, after a better-than-than expected jobs data for September.

In London, November Brent crude futures [LCOCV1  105.91  ---  UNCH  (0)   ] extended losses to the session low of $104.37, down $1.36, or 1.29 percent.

Oil was little changed earlier in the session, after U.S. nonfarm payrolls rose by 103,000 versus forecasts for 60,000 in September, and job gains for the prior months were revised higher.

But part of September's relative strength reflected the return of 45,000 Verizon Communications [VZ  36.16    0.25  (+0.7%)   ] workers who had dropped off payrolls in August due to a strike. Excluding those workers, payrolls increased by 58,000, just missing forecasts.

"The market rallied on the positive number, but if you eliminate the Verizon workers returning you get additions much closer to expectations," said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. "And after this week's correction higher you may be seeing some stalling because there still is uncertainty about economic growth going forward."

Both Brent and U.S. crude finished up strongly on Thursday after the announcement of further money creation schemes from the Bank of England and the European Central Bank. The oil markets remain on track for weekly gains.

"If you flood the market with liquidity, that liquidity has got to go somewhere," said Michael Hewson, an analyst at CMC Markets. "(The moves by the two central banks) have made people think it's only a matter of time before the Fed follows suit. I think they could be waiting a long time for that to happen."

John Kilduff, a partner at hedge fund Again Capital in New York, said it seemed premature to use the U.S. jobs data to declare that: "We are out the deep woods in terms of the economy overall."

Oil prices had come under pressure earlier in the session after Moody's cut its ratings on British banks Lloyds and Royal Bank of Scotland and said that the U.K. government would have to continue to support the country's systemically important financial institutions.

Olivier Jakob, oil analyst at Petromatrix in Switzerland, said that Brent needs to close above $105 a barrel to maintain some momentum next week.

"The problem is that buying above that level one needs to have a next target at $110 a barrel and a great confidence in the global economy for the sustainability of such price levels," he said. 

cnbc.com