Bloomberg News

Oil Falls in New York, Heads for Bear Market as 2011 Gain Erased

June 20, 2011

June 20 (Bloomberg) -- Oil fell to the lowest in four months in New York, heading for a bear market, on speculation a weakening global economy and Greece’s debt crisis will lead to reduced fuel demand.

Futures slid as much as 2 percent today, erasing gains made this year, as European governments failed to agree on releasing a loan payout to spare Greece from default and Japan’s exports dropped in May more than forecast. Crude traded for a second day below its 200-day moving average, a major technical-support level, and is close to a 20 percent decline from its 2011 settlement high in April, the sign of a bear market.

“The major influence continues to be the European situation,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicted oil will average $113 a barrel in the third quarter. “If you look at what happened to the oil price during the financial crisis you can see that these events have a big impact. There is this tone of a global slowing in the economy.”

Crude for July delivery fell as much as $1.87 to $91.14 a barrel in electronic trading on the New York Mercantile Exchange. That’s the lowest intraday price since Feb. 22 and is below $91.38, the final settlement price of 2010. It was at $91.40 at 3.22 p.m. Singapore time.

Futures are trading 19.8 percent below the 2011 settlement high of $113.93 on April 29. A 20 percent decline is typically considered to be an indicator of a bear market. The July contract expires tomorrow. August futures are down $1.60, or 1.7 percent, at $91.80.

Bollinger Band

Brent oil for August delivery on the London-based ICE Futures Europe exchange fell as much as $1.56, or 1.4 percent, to $111.65 a barrel. Prices are up 18 percent this year.

Oil in New York is trading below its 200-day moving average, currently at $92.30 a barrel, according to data compiled by Bloomberg. Prices are also below the lower Bollinger Band at $93.58, a technical indicator that may signal the market has fallen too far.

Euro-area finance ministers pushed Greece to pass laws to cut its deficit and sell state assets. They left open whether the country will get the full 12 billion euros ($17.1 billion) promised for July as part of a bailout package agreed last year, according to Luxembourg Prime Minister Jean-Claude Juncker, after chairing a crisis meeting in his country. Decisions on the next payout and a three-year follow-up package were put off until early next month.

Growth Forecast

Japan’s exports decreased 10.3 percent from a year earlier after April’s 12.4 percent drop, the Finance Ministry said today. The median estimate of 25 economists surveyed by Bloomberg News was for an 8.4 percent decline.

The International Monetary Fund cut its forecast for U.S. growth in 2011, warning of setbacks to the economic recovery with potential contagion from Europe’s debt crisis.

The U.S. will expand 2.5 percent this year and 2.7 percent in 2012, down from the 2.8 percent and 2.9 percent projected in April, the Washington-based fund said June 17. It sees the world economy expanding 4.3 percent this year, from 4.4 percent in April.

Hedge funds and other speculators boosted wagers on crude rising in the seven days ended June 14, the U.S. Commodity Futures Trading Commission said in its weekly Commitment of Traders report. Net-long bets climbed by 3,398 futures and options combined, or 1.8 percent, to 194,372. That was the first increase in three weeks.

Crude may decrease this week on signals economic growth in the U.S. and China will slow, curbing fuel use in the world’s biggest oil-consuming countries, according to a Bloomberg News survey. Eighteen of 38 analysts and traders, or 47 percent, forecast prices will decline through June 24.

Thirteen respondents, or 34 percent, predicted oil will increase and seven estimated there will be little change. Last week, 54 percent of respondents said futures would drop.

--With assistance from Christian Schmollinger and Yee Kai Pin in Singapore. Editors: Alexander Kwiatkowski, Paul Gordon

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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