Oil prices dropped around 2 percent earlier after CME Group Inc (CME.O), the world's largest commodities exchange, raised the margin call for crude futures by 25 percent as volatility soared. The margin hike was the fourth since February, when civil war in Libya cut its crude exports.
Brent crude fell $1.22 to $114.68 a barrel by 0622 GMT, after posting the second-largest gain on record on Monday. U.S. crude tumbled $1.59 to $100.97, erasing nearly a third of the previous day's gain of more than $5.
China's April crude oil imports rose 1.7 percent from a year earlier to 5.24 million barrels per day (bpd), their third highest, official data showed on Tuesday.
"People are still trying to figure out how much monetary tightening will play a role in slowing growth over the next quarters," said Jeremy Friesen, commodity strategist at Societe Generale.
"The numbers from China were pretty good. People are now going to be paying attention to whether you see a real drop in demand," related to high prices and tight monetary policy, he said.
Exports from China grew at a faster-than-expected rate of 29.9 percent in April, propelling the country's trade surplus to the largest in four months. While expansion is bullish for oil, fast growth could force the government to take more steps to cool the growth and slow the pace of rising demand.
MARGINS
The cumulative increase in margins to maintain positions on U.S. crude benchmark West Texas Intermediate since February is 67 percent, with the cost rising to $6,250 per contract from $3,750.
"Having high margin requirements makes it more difficult for speculative traders to enter the market, so naturally that will cause less speculative activity in oil markets," said Ben Westmore, commodity economist at National Australia Bank.
Margins are deposits paid by investors in futures markets, where full payment is made when contracts mature, to an exchange or clearing house to cover the risk of default and are based on the largest most-likely daily market move.
CME's move comes after a volatile week of oil trading that saw U.S. crude prices fall from over $114 a barrel -- the highest level since 2008 -- to $94 a barrel.
That drop was part of a wider commodities sell-off last week, spurred in part by steep margin increases of 84 percent in silver over the past two weeks.
The margin hike impact on oil prices may be less severe than in silver, which fell more than 30 percent from a record high in late April due to a succession of margin hikes that nearly doubled trading costs for the precious metal.
"It won't be as significant as the impact on the silver market because silver prices have just risen so strongly and based very little on fundamentals," Westmore said.
Volatility remained high with the Chicago Board Options Exchange's oil volatility index .OVX up 0.65, or 1.57 percent, at 42.09 on Tuesday. The index touched 48.64 last Thursday, the highest in nearly a year.
Oil markets are also under pressure from a downgrade of Greece's credit rating by Standard and Poor's. The cut further into the junk category reflects growing doubts that the euro zone's most fragile economy can manage its debt without imposing losses on private bondholders.
A troubled euro zone economy has bearish implications for dollar-denominated crude prices not only because any dollar gain against the euro makes crude costlier in Europe, but because Europe's economic woes may curb its oil demand.
Technical charts showed Brent was expected to retrace to $110.84 per barrel, as a rebound that started from the May 6 low of $105.15 has been completed, while U.S. oil faces a strong resistance at $102.88 and is expected to retrace to $99 per barrel, Reuters market analyst Wang Tao said.
SUPPORTING PRICES
Bearish sentiment was limited by rising concerns over U.S. gasoline supply ahead of the summer driving season.
A Reuters poll ahead of weekly industry and government reports forecast U.S. gasoline supplies had eased last week for the 12th consecutive time, falling 100,000 barrels, while crude stockpiles rose 1.3 million barrels.
U.S. gasoline futures rose 0.66 cents to $3.2855 a gallon, after jumping 6 percent on Monday.
No comments:
Post a Comment