Oil prices eased on Friday, trading at around $119.50 a barrel, due to renewed fears about the state of debt-laden eurozone economies following a downgrade of Spain’s credit rating.
Traders and investors took a more cautious stance after Standard & Poor’s reduced its credit rating on Spain by two notches to BBB+, citing expectations that the government’s finances will deteriorate more than previously thought due to a shrinking economy and an ailing banking sector.
S&P also put a negative outlook on the credit and said Madrid’s situation could deteriorate further unless ambitious measures were taken at the European level.
Brent crude, widely used as a global oil benchmark, was down 50 cents to $119.42 a barrel by 1030 GMT, after rising in the past two sessions.U.S.crude oil slipped 45 cents to $104.10 a barrel.
Traders and analysts said that oil prices were holding up relatively well on a quiet news day, with euro/dollar levels driving some of the intraday movements.
“The Spanish downgrade rekindled the smouldering fears of Europe, but there hasn’t been much else to fan the flames,” said Nick Trevethan, senior commodity strategist at ANZ in Singapore.
“It looks like a very quiet end-of-the-week market,” agreed Tony Machacek, a trader at Jefferies Bache in London.
Others suggested that S&P’s downgrade of Spain’s sovereign debt had not come as much of a surprise, hence the muted response from the oil and equities markets.
“I’m surprised they haven’t done it sooner,” said Michael Hewson, an analyst at CMC Markets.
“When you really look at Spain’s finances, they are in much worse shape than Italy, but they were on a higher credit rating as far as S&P was concerned. Now Spain’s been cut to the same level. They’re probably not telling the market anything it doesn’t already know.”
A bond auction by Italy of some 5.95 billion euros got away without any trouble, forestalling any further sentiment-driven sell offs.
“We shouldn’t expect much of a turn in market sentiment until we get the U.S. Q1 GDP numbers this afternoon,” said Filip Petersson, a commodity strategist at SEB.
Preliminary estimates forecast U.S. first quarter GDP growing by 2.5 percent, slower than the 3 percent achieved in the fourth quarter of 2011.
But some analysts saw potential for further falls given the supply.