Crude oil prices tumbled despite Iran’s threat of cutting oil exports in an attempt to oppose sanctions from the US and its Western allies. Market sentiment was weak as Moody’s downgraded credit ratings of 5 Spanish regions (including Catalonia, Spanish Prime Minister Rajoy’s home region) and the Bank of Spain’s warned that a tax revenue shortfall could cause the government to miss its 2012 budget deficit target. The front-month contract for WTI crude oil declined for a third consecutive day to a 3-month low of 85.69 before closing at 86.67, down -2.23%, while the equivalent Brent crude contract fell for a sixth consecutive day to settle at 108.25, down -1.09%. The benchmark Comex gold contract slipped to as low as 1704.6 before recovering to 1709.4, down -0.98%, at close.

Iran threatened to suspend all its oil exports if the US and its Western allies tightened sanctions against the Middle East country. Iran’s oil minister Rostam Qasemi stated at the World Energy Forum in Dubai, that “if you continue to add to the sanctions, we cut our oil exports to the world”. Qasemi continued, “We are hopeful that this doesn’t happen, because citizens will suffer. We don’t want to see European and US citizens suffer”. Yet, this warning failed to send oil prices higher as investors were more concerned about the economic outlook.

In Spain, Moody’s downgraded credit ratings of Catalonia and 4 other Spanish regions. According to the rating agency, the decision was “driven by the deterioration in their liquidity positions, as evidenced by their very limited cash reserves as of September 2012 and their significant reliance on short-term credit lines to fund operating needs”. Meanwhile, the Bank of Spain stated that it’s concerned whether the country would meet its budget deficit. Governor Luis Maria Linde said that the outlook, “a fall of 0.5% in GDP in 2013, is certainly optimistic in comparison with the outlook shared by the majority of international organizations and analysts, which is around a 1.5% fall”, however, economic recession would lower tax revenue and thus make it more difficult to reach deficit target. Linde stated cautioned that “the revenue outlook for 2013 is subject to downward slippage risks... If this risk materializes, and is not counteracted through adequate actions in the rest of 2012, this means it will be difficult to reach the 2013 objectives, and added to what is budgeted".

The industry sponsored API estimated that crude inventory climbed +0.31 mmb in the week ended October 19. For fuel products, gasoline stock increased +0.18 mmb while distillate fell -0.89 mmb. The DOE/EIA probably reported that crude inventory rose +1.8 mmb while gasoline and distillate slipped -1 mmb and -1.5 mmb respectively.

Oil and Gold Reports contributed by Oil N' Gold