* S&P; cuts Spain’s credit rating by two notches
* Coming Up: U.S. Q1 GDP at 1230 GMT
By Claire Milhench
LONDON, April 27 (Reuters) – 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.
Hewson said the market would be looking for evidence that
the U.S. was not experiencing any significant drop off from the
growth enjoyed in the fourth quarter.
“If we come in around 2.3-2.5 percent I think markets will
be fairly happy going in to the end of the week,” he said.
FURTHER FALLS POSSIBLE
But some analysts saw potential for further falls given the
supply now coming through from Libya, and as tensions with Iran
over its nuclear programme have eased.
Carsten Fritsch, an energy analyst at Commerzbank in
Frankfurt, cited reports from Libya that it will exceed pre-war
oil production levels by mid-2012.
“That will just add to the physical over-supply and should
weigh on prices if the support from financial markets fades,” he
said. In his morning note he added that the current supply
surplus roughly equates to Libya’s oil production level because
the other OPEC producers have not yet cut back their oil
production accordingly.
