On the back of heightened fears regarding the health of Spain's banking system, oil futures plunged to seven-month lows on Wednesday. NYMEX-traded crude for July delivery fell $2.94, or 3.2%, to settle at $87.82 a barrel. That's the lowest closing price since October. In London, Brent crude dropped $3.21, or 3%, to finish the day at $103.47 a barrel. That's the lowest settlement for Brent, the global benchmark, since December.
Not surprisingly, traders flocked to the only safe haven they know these days, the U.S. Dollar. The PowerShares DB US Dollar Index Bullish (NYSE: UUP) gained 0.8% and closed at a new 52-week high. Slack demand in the U.S. continues to hamper oil's upside. The Energy Information Administration said today that oil demand in the first quarter was the lowest in 15 years.
On the bright side, U.S. oil imports fell by 266,000 barrels per day in March, the second year-over-year decrease, according to the EIA. Canada remains the biggest supplier of crude to the U.S., followed by Saudi Arabia and Mexico.
On Tuesday, traders glossed over Spain's banking crisis, but that was far from the case today as it became clear the European Central Bank is opposed to Spain's plan to fund a bailout of Bankia, one of Spain's largest lenders, with the sale of Spanish sovereigns. Chances are demand for additional Spanish bonds would be weak at best as yields on those bonds continue to surge and the costs of credit default swaps used to protect bondholders against default touched record highs for Spanish debt today. An auction of five- and 10-years in Italy was also weak at best.
U.S. equities were punished on the day, giving up all of Tuesday's gains and then some. The Dow Jones Industrial Average plunged 161 points, dragging Exxon Mobil (NYSE: XOM) to a loss of 2.6% on above average volume. Not only did the largest U.S. oil company close below its 200-day moving average since last 2011, but also $10 billion in market value was erased from the stock. Chevron (NYSE: CVX) also lost 2.6% on strong turnover.
Shares of Chesapeake Energy (NYSE: CHK), the second-largest U.S. natural gas producer, gained almost 0.6% after the company said it is selling 57,000 net acres of leaseholds and producing wells as part of its ongoing efforts to raise cash and reduce its debt load by $9.5 billion by the end of the year. Oklahoma-based Chesapeake has already sold $2.6 billion in assets this year. The assets sold today are in the Woodbine Sand play in East Texas. The company said those assets are now viewed as non-essential.