Oil sinks on Europe concern

25 May 2010

Written by Kim Bardsley

Crude oil prices were falling sharply on the New York Mercantile Exchange (Nymex) this morning (May 25th), and were hovering above $68 a barrel as European markets opened, down more than $2.

The losses came amid speculation that the debt contagion would soon engulf other eurozone members such as Spain, which has been warned by the International Monetary Fund that more must be done to strengthen its banks.

Speaking to Reuters, Tony Nunan, a risk manager with Tokyo-based Mitsubishi, said traders have moved out of riskier assets and made a flight towards the dollar, the world's actively traded hedge currency.

The yen, which is the world's second-favourite hedge, also touched an eight-year high against the euro.

"The fact that the dollar is strengthening is a sign of risk aversion and deleveraging. People are moving away from crude oil," said Mr Nunan.

Heating oil prices were also exposed to this flight to safety and were falling in line with crude on the Nymex this morning.