Bloomberg News

Crude Oil Declines on Concern Europe Crisis May Stall Recovery

June 15, 2011

June 15 (Bloomberg) -- Oil fell from a three-day high in New York amid concern that Europe’s debt crisis will threaten the region’s economic recovery and curb demand.

Futures slid as much as 1.2 percent, after posting their biggest gain in almost a month yesterday, as European Union finance ministers struggled to break a deadlock on a second rescue plan for the Greek economy. U.S. crude stockpiles fell by 3.01 million barrels last week, the industry-funded American Petroleum Institute said yesterday. A Bloomberg survey indicated government data today may show a decline of 1.8 million barrels.

“The debt situation in Greece is coming into focus again so people are hesitant to buy,” said Gerrit Zambo, a trader at Bayerische Landesbank in Munich. “The supply situation everywhere is quite relaxed, especially in the U.S.”

Crude for July delivery declined as much as $1.17 to $98.20 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.71 at 1:15 p.m. London time. The contract gained 2.1 percent yesterday, the biggest increase since May 18. Prices are 28 percent higher in the past year.

The discount for New York futures to Brent traded in London was $19.90 a barrel, after reaching a record of $22.79 yesterday. Brent oil for July delivery slid $1.61, or 1.3 percent, to $118.55 a barrel on the London-based ICE Futures Europe exchange. The contract expires today. The more actively traded August future fell $1.62 to $117.73.

European Meetings

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet on June 17 in Berlin to try to resolve their differences on a rescue for Greece, which was downgraded this week to the world’s lowest credit rating by Standard & Poor’s. EU finance ministers agreed to convene again on June 19.

Shares of BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s three biggest banks, dropped more than 1 percent after Moody’s Investors Service placed their credit ratings on review to scrutinize their holdings of Greek debt.

The global economy has “hit a bit of a short-term patch of weakness but we still see the second half of the year as being pretty strong,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicted crude will average $113 a barrel in the third quarter. “Higher oil prices might be having a marginal impact on growth in the advanced economies.”

The Energy Department report today may say U.S. crude inventories fell from 368.9 million last week, according to a Bloomberg News survey of 13 analysts. Gasoline supplies probably rose 1.05 million barrels, the survey shows.

API Report

Crude stockpiles dropped to 363 million barrels, the lowest in seven weeks, according to the American Petroleum Institute report yesterday. Gasoline inventories climbed 1.13 million barrels to 213.5 million barrels, the API said. Oil-supply totals from the API and the Energy Department have moved in the same direction 72 percent of the time over the past year.

The institute collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

The cancellation of some supplies of U.K. Forties crude for June loading and ongoing turmoil in Libya boosted Brent’s value relative to WTI, said Ken Hasegawa, a commodity derivative sales manager at Newedge in Tokyo.

Libya Supplies

The North Atlantic Treaty Organization dropped leaflets across Libyan government lines around the besieged rebel-held city of Misrata, threatening attacks by Apache helicopters if the daily bombardment of the enclave continues.

“Some Forties crude for June loading were rolled over to July and in Libya supplies are still suspended,” Hasegawa said. “I would want to watch if Brent goes up to $123 a barrel because it will try to reach $127 if that happens.”

The gap is widening because of increased production in Canada and shale oil in the U.S., according to Francisco Blanch, a Bank of America Merrill Lynch analyst. Middle East disruptions are supporting Brent, he said today in London.

While the gap was determined in the past by excessive stockpiles at the U.S. storage hub in Cushing, Oklahoma, the current divergence is more closely linked to shortages of blends similar to Brent crude, BNP Paribas SA said yesterday in a separate report.

--With assistance from Lananh Nguyen in London. Editors: John Buckley, Mike Anderson

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net; Ayesha Daya at adaya1@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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