Oil plunged Monday on concern that Europe’s sovereign-debt crisis is worsening and a Chinese central-bank adviser suggested that the country’s economic expansion may slow further.
Song Guoqing, a member of the People’s Bank of Chinamonetary policy committee stated that growth in China, the second-largest crude consuming nation, may decline for a seventh straight quarter.
In London, Brent crude for September delivery was down $2.63 at $104.20 a barrel on the ICE Futures Europe exchange.
By early afternoon on Monday, benchmark oil for September delivery was down $2.45 at $89.38 a barrel in trading on the New York Mercantile Exchange.
Futures fell as the cost of insuring Spanish debt surged to a record high and on news that Greece’s creditors will gather later this week to discuss doubts that the country will be able to meet bailout targets.
Last week’s announcement by Spain’s Valencia region that it would need help from Madrid was followed up by weekend reports that an official from Murcia stated that it would also tap the program and that Catalonia, Castilla La Mancha, the Balearics, Canary Islands and Andalucia are likely to follow.
“There are fears this could be the beginning of a domino effect, which ultimately leads to Spain having to join Greece, Portugal and Ireland in asking for an official rescue,” said Carsten Fritsch, an energy analyst at Commerzbank.
Phil Flynn, senior market analyst for the bank, said recent headlines about Europe has raised new doubts about the euro zone’s viability, pushing aside geopolitical concerns that had dominated the oil market last week.
“Based on what we’re hearing, it’s amazing we’re not down more,” he said.
News that China’s imports of Iranian crude surged last month put even more pressure on demand for oil futures.
According to Bloomberg estimates, China imported 2.6 million metric tonnes of crude from Iran in June, an increase of 17 percent on the previous month, compared with last year’s monthly average of 2.3 million tonnes.
Iran has seen its crude exports plunge this year as a result of sanctions imposed by the US and the EU.