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Oil Slides as Cyprus Bailout Woes Persist

Tuesday, 19 Mar 2013 | 3:34 PM ET
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The price of oil fell Tuesday as Cyprus lawmakers rejected a measure to tax bank accounts as part of a bailout plan for its shriveled economy and worries persisted about Europe's debt problems.

Benchmark U.S. light, sweet crude for April delivery fell $1.58 to finish at $92.16 a barrel on the New York Mercantile Exchange. Brent crude futures, used to price many kinds of oil imported by U.S. refineries, dropped $2.06 to end at $107.45 per barrel on the ICE Futures exchange in London.

Energy market investors were left hanging about developments in Cyprus, where lawmakers rejected a plan to tax bank accounts to stabilize the country's financial sector and clear the way for a massive international bailout. That has prompted fears of a run on banks across Europe, with accountholders questioning guarantees on their savings.

Analysts at Frankfurt's Commerzbank, while noting that "the upside potential is likely to remain limited" until the uncertainty over Cyprus subsides, also pointed out that the lack of alternative investment opportunities could support crude prices.

"The continuing high liquidity among investors, coupled with their willingness to take risks, is likely to lend support also to the commodities markets in the coming months," Commerzbank said.

Meanwhile, the economic news in the U.S. was brighter. The Commerce Department said builders broke ground on homes last month at a seasonally adjusted annual rate of 917,000, up from 910,000 in January and the second-fastest pace in 4 1/2 years. Building permits also increased in February, rising by 4.6 percent to 946,000, the most since June 2008.

A stronger economy is likely to increase demand for oil gas, but the nation's supplies remain ample. On Wednesday the Energy Department's Energy Information Administration is expected to report an increase of 2 million barrels in crude oil supplies and a drop of 2.5 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

U.S. oil production, at more than 7 million barrels a day, is at the highest level in 20 years.

Natural gas rose again Tuesday, boosted by forecasts for cold weather through the end of March. "Gas prices which have rallied 84 cents or nearly 27 percent in a little more than a month as strong end-of-season weather factors and dwindling inventories have boosted the market to levels not seen since the end of October, 2011," independent energy analyst Addison Armstrong noted.

Natural gas futures rose 9 cents to finish at $3.97 per 1,000 cubic feet in midday trading.

At the gas pump the national average for a gallon of regular stayed around $3.69. That's down a penny from a week ago and 15 cents lower than a year ago. Drivers in the Northeast, Midwest and on the West Coast are paying the most. Gas is cheapest in the South.