Global oil prices fall sharply thanks to rebounding dollar

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World oil prices hit multi-month lows on Wednesday, as the US dollar hit a 22-month high against euro on concerns over a possible Spanish bailout, dealers said.

Brent North Sea crude touched the lowest point since 20 December after sliding to $105 per barrel.

“The euro is at $1.24 – a low not seen since July 2010 – so obviously there’s very negative macroeconomic sentiment, and that’s what’s weighing on all markets including oil,” Andrey Kryunchenkov, VTB Capital analyst, said.

Asian and European stock markets dipped on Wednesday and the euro hit a new 22-month low at $1.2434, amid gloomy investor sentiment over a potential Spanish bailout, dealers said.

A stronger greenback makes dollar-priced crude more expensive for buyers using weaker currencies, like the euro. In turn, that tends to dent oil demand and push prices lower.

“Spain remains the key worry for the eurozone debt crisis, eclipsing optimism in Greece that the pro-bailout conservatives are leading the polls ahead of next month’s election,” added DBS Bank analysts in a commentary.

“As far as the eurozone crisis is concerned, the market does not see the light at the end of the tunnel,” the commentary added.

Investors are worried that Spain – the eurozone’s fourth largest economy – could be in line for a Greece/Ireland/Portugal-style massive international bailout which could put further strain on European and global financial institutions.

Meanwhile, analysts across the Atlantic forecasted US crude inventories remain at the highest level for this time of the year in 22 years, which also indicates a faltering demand in the world’s largest oil-consuming economy.

Dow Jones Newswires said early forecasts call for US crude stocks to drop by 400,000 barrels after rising by more than 35.4 million barrels over the past eight straight weeks.

“As US stockpiles hit their highest level for more than 20 years, confidence is falling off a cliff,” Justin Harper, market strategist at IG Markets Singapore, said.

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