Oil prices jumped above $39 a barrel on worries about the security of supplies from Iraq, Russia and Nigeria on Tuesday. Equities fell, bonds were flat and the Japanese yen recovered from earlier losses on the dollar while the U.S. currency was down against the euro. Wall Street looked set to open lower, based on U.S. stock index futures. "With the overseas oil situation, markets will react negatively at the open," said Barry Hyman, equity market strategist, Ehrenkrantz King Nussbaum. "We've been rallying on oil dropping to close to $35 a barrel but now at $39 plus, the same concerns that weakened the market in past weeks should be evident again." Worries about oil prices, which stirred financial markets a month back, reappeared as fears about supply sent the cost of crude jumping.
Iraqi exports were halved by sabotage and Nigeria faced a possible strike. Traders were also concerned that Russian producer YUKOS may have to cut some of its exports as it struggles to finance core operations with its bank accounts frozen. U.S. light crude was trading at $39.23 a barrel, up 84 cents. IPE Brent was up 59 cents at $36.86 a barrel, "The longer Iraqi exports stay affected, the closer we may creep to $40 a barrel, especially if there's any other bad news on the supply side," said David Thurtell, commodities strategist at Commonwealth Bank of Australia in Sydney. Financial markets are very wary of rising oil prices, fearing the cost could undermine the strength of the world economy and drive up inflation, prompting higher interest rates.
STOCKS, DOLLAR, BONDS
European equities dipped. The FTSE Eurotop 300 index <.FTEU3> of pan-European blue chips was 0.65 percent down while the narrower DJ Euro Stoxx 50 index <.STOXX50E> fell 0.92 percent. Earlier in Japan the Nikkei average <.N225> finished down 66.44 points or 0.58 percent at 11,475.27, adding to its 354-point decline over the previous two sessions. It closed below the 11,500 mark for the first time since June 18. The broader TOPIX index <.TOPX> was down 0.65 percent at 1,148.99. On the foreign exchange market, the yen slipped at one point to a 2-1/2 week low against the dollar as the falling Tokyo stocks and jitters before a parliamentary election unnerved investors. It recovered to be essentially flat at 109.05 yen to the dollar. The euro stood at $1.2311 , up 0.20 percent. Euro zone government bond yields were virtually flat as the market awaited a fresh steer after a week-long rally in prices. The two-year Schatz yield was at 2.622 percent and the benchmark 10-year Bund yield was steady at 4.253 percent.///