Crude drops to $68 as markets keep plummeting amid rising tensions in Korea

Oil prices continued falling today amid yet more declines in global equity markets, which further muddied the outlook for oil demand. European shares managed to recoup losses yesterday with the UK’s FTSE 100 closing above the opening level after a volatile session. However, a selloff in the US later on Monday that plunged the main indexes, the Dow Jones Industrial Average and the broader S&P 500 index, by more than 1%. The main factors behind the latest freefall were the jitters over the European debt crisis following the bailout of small savings bank CajaSur by the Bank of Spain and rising tensions on the Korean peninsula, where the prospect of the outbreak of a military conflict seems to be more realistic than at any time over the past 15 years.
The prices were unaffected by positive news from China, where a state official said that the country would have to implement a more cautious approach to introducing more monetary policy tightening measures to ease concerns over possible declines in oil demand from the world’s second largest energy consumer. China has implemented a series of policy tightening measures this year including upping ratio requirements for banks and lending restrictions in an attempt to curb inflation, which has come close to the government’s annual target of 3% amid rapid economic expansion.
Last week’s bullish inventories reports also failed to lift the prices. The American Petroleum Institute (API) reported a surprising decline in US crude stockpiles of nearly 0.8 million barrels, while an increase was expected. A more closely watched report from Energy Information Administration (EIA) showed a smaller than expected increase of 200,000 barrels in US stockpiles. EIA also said that gasoline stocks shed 300,000 barrels and distillates, which include diesel and heating oil, were down by 1 million barrels.
This week’s reports from the API and EIA are due today and tomorrow respectively.
July Brent Crude declined to US$69.12/barrel, while US light, sweet crude dropped to US$68.13/barrel.
Oil and gas supermajor BP (LSE: BP) once again was among the top fallers in the sector with a 3% loss as the oil spill disaster in the Gulf of Mexico doesn’t appear to be anywhere near end. The company now plans to pipe mud into a blowout preventer that is leaking oil into the sea and then cap the well with concrete. The high risk operation has a high chance of success, but could make the problem worse if it fails. The US government has warned the company that it could be removed from the clean-up operations after missing a series of deadlines and appearing to be unable to contain the spill.
Fellow supermajor Shell (LSE: RDSB) lost 2%, while BG Group (LSE: BG) shed 2.7% and Tullow Oil (LSE: TLW) and Cairn Energy (LSE: CNE) both declined 4%.
Engineering firms Amec (LSE: AMEC) and Petrofac (LSE: PFC) followed, moving down 5.2% and 4.1% re4spectively.
Midcaps also were in decline today. Dragon Oil (LSE: DGO) slipped 6.5%, while JKX Oil & Gas (LSE: JKX) dropped 5.7%, Salamander Energy (LSE: SMDR) and Dana Petroleum (LSE: DNX) lost 4.5%, Heritage Oil (LSE: HOIL) and Soco International (LSE: SIA) moved down 4%, Premier Oil (LSE: PMO) declined 3.5% and Melrose Resources (LSE: MRS) slid 1.25%.
Services companies got hit hard with Wood Group (LSE: WG) and Wellstream Holdings (LSE: WSM) plunging 8% and 5% respectively.
Most juniors followed. EU operating Rome-based oil junior Mediterranean Oil & Gas (AIM: MOG) and North Sea explorers Xcite Energy (AIM: XEL) slipped 12% and 11%, Iraq and Algeria operating Gulf Keystone Petroleum (AIM: GKP) and Africa and FSU operating oil and gas junior Victoria Oil & Gas (AIM: VOG) moved down 9%, Oil and gas company with assets in Iraq, Syria and Gulf of Mexico, Gulfsands Petroleum (AIM: GPX) and Ukraine focused gas producer Regal Petroleum (AIM: RPT) lost 8%, Atlantic Canada operating oil and gas group Enegi Oil (AIM: ENEG) and Eastern Europe focused junior Aurelian Oil & Gas (AIM: AUL) lost 7%. Irish oil and gas exploration company Petroceltic International (AIM: PCI) followed with a 6.5% loss.
US focused oil and gas junior Caza Oil & Gas (AIM: CAZA) went against the tide, climbing 5%.

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