Current Oil Prices Drop with New Economic Strains

Current oil prices fell on new economic strains due to the downgrade of France’s credit rating and one day after worries on Middle East supplies reached a one-month high, sparked by the unrest between Gaza and Israel.

On the NYMEX, the U.S. benchmark for January delivery shed 20 cents to a crude price per barrel of $89.08. Meanwhile, in London, the current oil price of Brent reflects a 17 cent fall, to $111.53 a barrel.

France faces a new pressure on its economy after Moody’s agency reduced the bond rating of its government by one level, to Aa1, and cautioned of the possibility of an additional downgrade.

The recent action of Moody’s added to similar cuts by Standard and Poor’s last January. So far, Fitch has kept the same assessment for the debt of France.

The downgrade placed France below other partners in the eurozone like Germany, Finland, Netherlands and Luxemburg, which have maintained AAA ratings even if all of them have at least one negative forecast from the three agencies.

Meanwhile, the crude price per barrel previously reflected a surge of more than $2 with the rising conflict between Israel and Gaza, signaling new concerns regarding supplies from the Middle East.

Tensions seemed to be slightly easing today as Israel stopped its threat for a new ground offensive in Gaza to give time for peace talks led by Egypt. Other top diplomats are also flying in to strengthen efforts to stop cross-border tensions that have been going on for almost a week.

Since the violence began last November 14, when an Israeli airstrike targeted Ahmed Jaabari, a top Hamas military commander, Gaza militants have fired at least 1,000 rockets at the state.

The violence occurs as Israel prepares for another general election in the month of January, increasing the specter of a wider military campaign like its devastating Operation Cast Lead that lasted for 22 days and began at the end of December 2008.

By: Chris Termeer

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