Bloomberg News

Oil Declines From Three-Week High as Germany Damps Rescue Hopes

October 17, 2011

Oct. 17 (Bloomberg) -- Crude oil declined from the highest price in more than three weeks after Germany said European Union leaders won’t provide a complete fix to the region’s debt crisis, damping hopes for a quick rescue plan.

Oil fell 0.5 percent as Chancellor Angela Merkel said expectations that rescue plans to be announced at an Oct. 23 summit will speedily address Europe’s problems were “dreams.” Prices also weakened as data showed manufacturing in the New York region contracted in October at a faster pace than forecast.

“People started to accept that Europe is going to take awhile to recover and there is no quick fix,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York.

Crude for November delivery fell 42 cents to settle at $86.38 a barrel on the New York Mercantile Exchange. The Oct. 14 closing price of $86.80 was the highest since Sept. 20.

Brent oil for December settlement fell $2.07, or 1.8 percent, to $110.16 a barrel on the London-based ICE Futures Europe exchange.

The spread between the front-month Brent and corresponding Nymex crude contracts narrowed to $23.54 from a record high of $27.88 on Oct. 14.

Summit Meeting

Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Steffen Seibert, her chief spokesman, said at a briefing in Berlin today. The search for an end to the crisis “surely extends well into next year,” he said.

Group of 20 finance ministers and central bankers concluded weekend talks in Paris endorsing parts of an emerging plan to avoid a Greek default, bolster banks and curb contagion. They set the Oct. 23 summit of European leaders in Brussels as the deadline for it to be delivered.

“Europe is going to continue to be influential in the oil market and that’s what’s driving the market lower,” said Kyle Cooper, director of research for IAF Advisors in Houston.

The Federal Reserve Bank of New York’s general economic index was minus 8.5 in October. Economists projected an improvement to minus 4, based on the median of 53 forecasts in a Bloomberg News survey. Readings less than zero signal companies in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are cutting back.

Japan Downgrade

Japan’s government downgraded its assessment of the economy for the first time since April as the strengthening yen and slowing global growth weighed on the prospects for an export- driven recovery.

The Cabinet Office today lowered its evaluation of consumer spending, exports and industrial production, all for the first time in six months. Output increases are moderating and consumer spending and overseas shipments have stalled, the report said.

Japan is the world’s third-largest oil consumer. The U.S. and China are first and second.

Oil also fell as stock markets declined. The Standard & Poor’s 500 Index fell 1.7 percent to 1,203.89, and the Dow Jones Industrial Average slid 1.8 percent to 11,435.18.

“The oil market is moving on financial sentiment, by what’s happening in the stock market,” said Adam Sieminski, chief energy economist at Deutsche Bank in Washington.

Hedge Funds

Hedge funds raised bullish oil bets by 7.8 percent in the week ended Oct. 11, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Oct. 14.

Net-long positions betting on rising prices held by hedge funds, commodity pools and commodity-trading advisers, in futures and options combined increased 11,389 to 157,693.

In London, speculative bets that Brent prices will rise, in futures and options combined, outnumbered short positions by 41,004 contracts, the London-based ICE Futures Europe exchange said today in its weekly Commitment of Traders report. Net-long positions rose by 11,911 contracts, from 29,093 a week earlier.

Crude gained earlier on speculation China’s economy will maintain growth rates.

Gross domestic product in the nation increased 9.3 percent in the third quarter from a year earlier, according to the median estimate of 22 economists in a Bloomberg News survey.

That would be the ninth straight quarter of expansion above 9 percent and follow a 9.5 percent gain in the previous three months in China.

Oil volume in electronic trading on the Nymex was 483,752 contracts as of 3:31 p.m. in New York. Volume totaled 670,479 contracts on Oct. 14. Open interest was 1.44 million contracts.

--With assistance from Mark Shenk in New York, Grant Smith in London, Bob Willis in Washington, Rainer Buergin in Berlin and Aki Ito in Tokyo. Editors: Richard Stubbe, Dan Stets

To contact the reporters on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

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


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