Oil Plunges as Volcano Ash Spreads



By: ORIT ALON  
Published: April 19th 2010
in Economics » Local

Oil rig
Pic: wikimedia commons

Oil prices plunged below US$82 a barrel Monday in Asia, probably effecting the Canadian exchange market extending big losses on expectations that disruption to air travel from the Icelandic volcano will undermine the global economic recovery and crude demand.

 

Benchmark crude for May delivery was down $1.62 to $81.62 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. A huge cloud of volcanic ash has shut down air traffic in most of Europe for four days - stranding passengers and scuttling travel plans and freight services that could end up costing billions of dollars. At the very least, traders say the volcano crisis will lower demand from airlines for jet fuel. "The market had underestimated the impact of the volcano," said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. "There's still a lot of uncertainty about how much this will affect the overall economy." Oil fell $2.27 to settle at $83.24 a barrel on Friday after the Securities and Exchange Commission said Goldman Sachs & Co. defrauded investors by failing to disclose key information about mortgage investments it sold as the housing market was collapsing in 2008.

 

 Investors speculated that Goldman may have to liquidate some positions in crude to pay for penalties if found liable. "I think the whole market sentiment has switched to less optimistic," Chu said. "Things are pointing more bearish now." All major Asian stock markets fell Monday.

 

No economist predicts disaster – yet. But there is no doubt that the longer the Eyjafjallajokull volcano belches ash, the greater the economic danger. While airlines hope to fly up to about half their regular schedules Monday, the potential for long-term air travel disruption still exists. Records show that the last time the Icelandic volcano stirred, in 1821, it erupted on an off for two years.




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