Bloomberg News

Oil Drops From Two-Week High in New York Before Europe Debt Vote

October 11, 2011

Oct. 11 (Bloomberg) -- Oil fell from its highest in more than two weeks in New York before a government vote in Slovakia on the euro area’s bailout fund that may endanger a recovery in the region’s economy.

Futures slipped as much as 1.3 percent and European equities fell after European Central Bank President Jean-Claude Trichet said the region’s debt crisis has “reached a systemic dimension.” Crude climbed 2.9 percent yesterday after German Chancellor Angela Merkel and French President Nicholas Sarkozy said they will deliver a plan to recapitalize the region’s banks by Nov. 3. An Energy Department report Oct. 13 may show U.S. crude supplies rose last week.

“Oil is on the weaker side on somewhat weaker equities,” said Eugen Weinberg, the Frankfurt-based head of commodities research at Commerzbank AG. “There is probably also some profit-taking after strong gains yesterday, when comments from Sarkozy and Merkel showed light at the end of the tunnel for the euro zone.”

Crude for November delivery on the New York Mercantile Exchange fell as much as $1.14 to $84.27 a barrel and was at $84.66 at 1:06 p.m. London time. The contract yesterday gained 2.9 percent to $85.41, the highest close since Sept. 21. Prices are down 5.4 percent this year.

Brent oil for November settlement declined 0.5 percent to $108.42 on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $23.46 to New York crude, compared with a record of $26.87 on Sept. 6.

Debt Crisis

The benchmark Stoxx Europe 600 Index lost 0.6 percent to 234.47 as of 1:08 p.m. in London. Slovak Prime Minister Iveta Radicova is seeking to pressure rebel lawmakers by tying the European Financial Stability Facility ratification to a no- confidence motion, after coalition partners failed to come up with a last-minute resolution to a Cabinet dispute. Parliament was due to begin debate at 1 p.m. local time, with a vote scheduled for sometime later.

ECB President Trichet, also head of the European Systemic Risk Board, said today that the debt crisis now threatens the region’s financial system.

“Sovereign stress has moved from smaller economies to some of the larger countries,” he told lawmakers in Brussels. “The crisis is systemic and must be tackled decisively.”

U.S. crude oil stockpiles probably rose by 1 million barrels last week, according to the median of nine analyst estimates in a Bloomberg News survey before a weekly Energy Department report on Oct. 13. The department is releasing the data a day later than usual because of yesterday’s Columbus Day holiday.

London-traded Brent may fall toward $90 a barrel as Libya resumes oil production amid lower demand, according to a report by Sanford C. Bernstein & Co. Oil stocks will rise and the need for crude from the Organization of Petroleum Exporting Countries will fall, driving Brent lower as spare capacity increases and demand moderates, London-based oil analyst Oswald Clint said in a report.

Brent’s rise toward $110 a barrel is temporary, supported by higher equity markets and “significant weakening” of the dollar, according to a report by Commerzbank AG. It has risen 8.5 percent since Oct. 4.

“This market optimism could already be put to the test today when the Slovakian parliament votes on the planned extension of the euro-zone bailout package,” said Carsten Fritsch, a Frankfurt-based analyst at Commerzbank. “Agreement is far from certain.”

Arab OPEC members that boosted crude exports to make up for reduced supply from Libya need to cut production as the North African nation increases output, Iran OPEC governor Mohammad Ali Khatibi said, according to the state-run Mehr news agency. The oil market is in a “very comfortable” situation and it is “too early” to talk about the next OPEC meeting, its Secretary General Abdalla El-Badri said in London today.

--Editors: John Buckley, Raj Rajendran

To contact the reporters on this story: Ayesha Daya in Dubai at adaya1@bloomberg.net

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


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