Bloomberg News

Crude Oil Falls in London on European Debt, U.S. Credit Review

July 14, 2011

July 14 (Bloomberg) -- Oil fell in London on speculation the U.S. may face a credit-rating downgrade and that European leaders won’t be able to contain the region’s financial crisis.

Brent crude fell as much as 0.9 percent, halting a two-day rally, after Moody’s Investors Service put the U.S. rating under review as talks to raise the government’s $14.3 trillion debt limit stalled, while concern grew that the European crisis is spreading. West Texas Intermediate oil gained in New York after a report yesterday showed U.S. inventories declined.

“Persistent worries about the euro zone’s economic stability continue to weigh heavily on Brent,” said Myrto Sokou, a London-based analyst at Sucden Financial Ltd. “WTI crude oil is getting some support from the weaker U.S. dollar.”

Brent for August settlement fell as much as 0.9 percent to $117.73 a barrel and was at $118.46 at 1:05 p.m. on the ICE Futures Europe exchange in London. The August contract expires today. The more actively traded September futures were down 43 cents at $117.42 a barrel.

Oil for August delivery on the New York Mercantile Exchange was 25 cents higher at $98.30 a barrel. The contract yesterday rose 62 cents to $98.05, the highest close since July 7. Front- month Brent, the European benchmark, traded at a premium of $20.16 a barrel to U.S. futures, compared with a record close of $22.29 on June 15.

Moody’s put the U.S. on review for the first time since 1995 as talks to raise the country’s $14.3 trillion debt limit stalled, adding to concern that political gridlock will lead to default. The American government has held its Aaa credit rating with Moody’s since 1917.

Gold Rallies

“With the failure of the U.S. government to solve the debt ceiling issue and Moody’s warning of a credit-rating downgrade, uncertainty levels are high,” David Wech, head of research at Vienna-based researcher JBC Energy GmbH, said in a note today.

Gold advanced to records in London and New York amid concern that U.S. and European debt woes will increase, boosting demand for the metal as a protection of wealth. Immediate- delivery bullion rose as much as $10.77, or 0.7 percent, to $1,593.15 an ounce and was at $1,592.55 by 10:23 a.m. in London.

The metal rose after Federal Reserve Chairman Ben S. Bernanke signaled yesterday the central bank has more tools for monetary easing should the economy weaken and stymie efforts to generate jobs for 14.1 million unemployed Americans.

North Sea Supplies

The Energy Department said yesterday U.S. crude stockpiles declined 3.1 million barrels last week to 355.5 million. Supplies were projected to drop 1.5 million barrels, according to a Bloomberg News survey. The industry-funded American Petroleum Institute said in a separate report on July 12 that inventories rose 2.34 million barrels.

BP Plc said its Valhall and Hod platforms off Norway remained shut after a fire at Valhall earlier this week.

Valhall was producing about 60,000 barrels a day before the closure and Hod a “few thousand barrels,” Jan Erik Geirmo, a BP spokesman in Norway, said in a phone interview.

The outage may support Brent crude prices today because it adds to the “current supply shortage premium from the region,” ANZ’s Natalie Robertson said.

Production from Nexen Inc.’s Buzzard oil field in the U.K. North Sea will rise to full rates in August, Nexen said today in its second quarter financial results. Output was reduced over the past two months because of maintenance and technical problems, Nexen said.

--With assistance from Ben Sharples in Melbourne, Christian Schmollinger and Ann Koh in Singapore and Eduard Gismatullin and Brian Swint in London. Editors: John Buckley, Alessandro Vitelli

To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net

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


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