Oil Rises As Euro Zone Avoids Recession

Brent crude oil futures gained last week,
as the euro zone narrowly avoided recession and as better GDP data raised hopes
that Germany will steer the way through the European debt crisis.

The euro zone economy stagnated, with zero
growth, the EU’s statistics office Eurostat said on Tuesday, noting that the
results were more positive than forecast, boosting riskier assets, but the
region’s debt crisis has sapped the life out of the French and Italian
economies and widened a split with paymaster Germany.

Brent crude rose to 111.87 dollars a barrel
after sliding to $110.04 on Monday, its lowest intraday price since January 25.

U.S. crude dropped 22 cents to 94.56
dollars a barrel, after Monday’s fall to 93.65 dollars, the weakest intraday
price since December 19.

German gross domestic product grew by 0.5
per cent in the first quarter, far exceeding forecasts due largely to robust
exports, helping to lift the euro from a four-month low.

“Brent is showing a positive move owing to
the news of Germany’s better-than-expected GDP,” said Thorbjoern Bak Jensen,
oil analyst at Global Risk Management.

“But the rise has been tempered by Italy’s
disappointing GDP and Moody’s downgrade.”

Moody’s Investors Service downgraded the
long-term debt and deposit ratings for 26 Italian banks on Monday, citing the
country’s recession and rising bad debt levels.

Greek party leaders are expected to convene
tomorrow, but there is little hope that President Karolos Papoulias’s proposal
to form a technocrat government would end the country’s political stalemate
with new election the most likely outcome.

Many market players think a fresh election
will make it more likely for Athens to ditch its bailout pledges hence, the
euro, even though euro zone finance ministers dismissed talk of Greece’s exit
as “propaganda and nonsense”.

“The Greek situation has reached a breaking
point,” said Guy Wolf, macro strategist at Marex Spectron,

“The EU has prevaricated for two years but
they can delay no longer on whether Greece is in or out. I do not see how they
can default and stay in the euro, I do not see the point.”

China’s Commerce Ministry said on Tuesday
the country’s foreign direct investment (FDI) inflows dropped 2.4 per cent in
the first four months of this year from last year.

FDI is an important gauge of the health of
the external economy, to which China’s vast factory sector is oriented.

The oil demand outlook continued to weigh
on prices, U.S. crude inventories were expected to have risen for an eighth
straight time last week, a Media survey of analysts on Monday showed.

Investors will also look towards tomorrow’s
meeting by U.S. regulators crafting the final language of the Volcker rule and
are expected to discuss how JP Morgan’s two billion trading loss may impact
their work.

Meanwhile, the physical market remains well
supplied with Saudi producers pumping enough oil to deal with the impact of the
sanctions on the oil market, analysts said.