Bloomberg News

Oil Falls on Europe Debt Crisis, Heading for Quarterly Decline

September 28, 2011

Sept. 28 (Bloomberg) -- Crude oil fell in New York, heading for the biggest quarterly drop since 2008, on concern that Europe’s debt crisis will linger and on rising U.S. stockpiles.

Futures dropped 3.8 percent as German Chancellor Angela Merkel signaled policy makers may review Greece’s second bailout after inspectors rule on whether the country is meeting the terms of its current package. Supplies rose 1.92 million barrels to 341 million last week, the U.S. Energy Department said today. Prices rose 5.3 percent yesterday, the biggest gain since May 9.

“The markets are questioning the details of the European bailout,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The market surged yesterday and we’re now seeing it give back most of those gains. The move higher was overdone.”

Crude oil for November delivery declined $3.24 to settle at $81.21 a barrel on the New York Mercantile Exchange. Futures are down 8.6 percent this month and 11 percent this year. Prices have dropped 15 percent since the end of June, the biggest quarterly loss since the last three months of 2008.

Brent oil for November settlement fell $3.33, or 3.1 percent, to end the session at $103.81 a barrel on the London- based ICE Futures Europe exchange. It traded at a premium of $22.60 to New York crude, down from a record $26.87 on Sept. 6.

Greece’s “numbers in September, as it now seems, were again different from what we expected under the program,” Merkel told Greek broadcaster NET when asked whether the second bailout agreed by European leaders on July 21 will be revised.

Return to Athens

Experts from the European Commission, European Central Bank and International Monetary Fund will return to Athens tomorrow as officials race to put in place a package of measures that will contain Greece. Euro-area finance ministers will hold a meeting on Greece in October amid concerns that a default could plunge the global economy into recession.

“Market sentiment changes from one day to the next based on optimism or despair about the Greek situation,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Prices are hemmed in, moving in either direction on the most recent headlines about the European debt crisis and the U.S. economy.”

Merkel’s remarks came as a person familiar with the matter said German banks are resisting pressure to accept larger writedowns on their Greek holdings. Lawmakers have called on lenders to accept a larger writedown than the 21 percent proposed by the Institute of International Finance, an industry group, said a person briefed on the talks.

Rescue Package

Earlier, the Financial Times Deutschland reported euro members have started talks on renegotiating the second bailout. Banks and insurance companies might have to increase their contribution to the rescue package, the German newspaper said, citing unidentified people familiar with the situation.

The Standard & Poor’s 500 Index dropped 1.4 percent to 1,159.01 and the Dow Jones Industrial Average fell 1 percent to 11,079.24.

The dollar rose 0.1 percent to $1.357 against the euro, the first gain in four days. A stronger U.S. currency curbs the appeal of dollar-denominated commodities as an investment. The S&P GSCI Index of 24 raw materials fell 2.7 percent to 603.55. Yesterday, the index climbed 3.3 percent, the most since May 9.

“Almost all of the commodities are getting whipped today,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “They overshot to the upside and the move higher has run out of steam.”

Imports and Refining

Crude stockpiles advanced as imports rose and refineries reduced operating rates. Imports surged 16 percent to 9.7 million barrels a day. It was the biggest gain since September 2008. Refineries operated at 87.8 percent of capacity, down 0.5 percentage points from the prior week.

Supplies of crude were forecast to increase 2.05 million barrels, according to the median of 14 analyst responses in a Bloomberg News survey.

Gasoline stockpiles rose 791,000 barrels to 214.9 million in the week ended Sept. 23, the report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, increased 72,000 barrels to 157.7 million.

Speculation that refineries on the U.S. East Coast will shut may send oil lower. ConocoPhillips said yesterday that it had begun to idle its refinery in Trainer, Pennsylvania. The plant will shut permanently in six months if Conoco can’t find a buyer. Sunoco Inc. said Sept. 6 that it will sell or shut its Philadelphia and Marcus Hook, Pennsylvania, refineries.

East Coast Refineries

“The crude market is also under pressure because of the announcement of yet another possible shutdown of an East Coast refinery,” said Carl Larry, director of energy derivatives and research at Blue Ocean Brokerage LLC in New York. “At some point we’ll be able to count on both hands the number of operable refineries on the East Coast.”

Oil volume in electronic trading on the Nymex was 441,052 contracts as of 3:20 p.m. in New York. Volume totaled 541,721 contracts yesterday, 18 percent below the average of the past three months. Open interest was 1.38 million contracts.

--With assistance from Grant Smith and Sherry Su in London. Editors: Richard Stubbe, Dan Stets

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.


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