Bloomberg News

Oil Falls a Second Day as European Debt Crisis Threatens Demand

November 15, 2011

Nov. 15 (Bloomberg) -- Oil fell for a second day in New York as speculation Europe will struggle to contain its debt crisis countered signs of declining fuel stockpiles in the U.S., the world’s largest crude consumer.

West Texas Intermediate slipped, extending yesterday’s 0.9 percent drop, as Italy’s borrowing costs climbed, adding to concern that Europe’s turmoil is worsening. U.S. crude inventories probably shrank for a second week, according to a Bloomberg survey before an Energy Department report tomorrow. Crude may advance to more than $200 a barrel if tensions over Iran’s nuclear program lead to conflict, SEB AB said.

“Crude has been suffering from renewed recession fears in the Euro-zone and strong gains in the dollar index,” said Andrey Kryuchenkov, a London-based analyst at VTB Group who predicts Brent prices will end the year close to current levels. “Fears over the ongoing debt crisis are still dominating headlines. The situation will not go away overnight.”

Crude for December delivery was at $98.03 a barrel, down 11 cents, in electronic trading on the New York Mercantile Exchange at 1:49 p.m. London time. Prices have risen in the last six weeks, the longest run of gains since April 2009.

Brent for December settlement, which expires today, was 27 cents higher at $112.16 a barrel on the ICE Futures Europe exchange. The more actively traded January contract climbed 38 cents to $111.66.

The European benchmark crude was $14.14 a barrel higher than New York futures, after ending yesterday at a $13.75 premium, the lowest since May 25. The spread is down 48 percent from a record $27.88 on Oct. 14.

Moving Average

“Two-hundred dollar crude oil is back on the radar screen,” said Bjarne Schieldrop, Stockholm-based chief commodity analyst at SEB, Sweden’s fourth-largest bank. “Geopolitical risk in the crude oil market has increased further due to renewed focus on Iranian nuclear ambitions. A full-blown conflict could send prices above $200.”

The United Nations’ International Atomic Energy Agency, drawing on evidence collected over eight years, said on Nov. 8 that Iran carried out “work on the development of an indigenous design of a nuclear weapon including the testing of components.”

Oil in New York has rallied 29 percent since settling at a one-year low of $75.67 a barrel on Oct. 4. Futures have technical support along the 200-day moving average, said Ken Hasegawa, a commodity-derivatives trading manager at Newedge Group in Tokyo. The indicator was at $95.15 today, based on data compiled by Bloomberg. Buy orders tend to be clustered near chart-support levels.

Bullish Bets

Hedge funds and other large speculators raised bullish bets on oil the most since May in the week ended Nov. 8, a Commodity Futures Trading Commission report showed yesterday. Wagers on rising prices increased 7.2 percent to 203,965 futures and options combined, the CFTC’s Commitments of Traders data showed.

U.S. crude stockpiles probably decreased 1 million barrels, or 0.3 percent, in the week to Nov. 11, according to the median estimate of 11 analysts surveyed by Bloomberg News before tomorrow’s Energy Department report. Supplies slid 1.4 million barrels to 338.1 million the prior week.

Gasoline inventories are expected to have dropped 1 million barrels, the survey showed. Stockpiles previously fell to 204.2 million, the lowest since June 2009, as imports and refinery output declined. Stockpiles of distillate fuels, which include heating oil and diesel, may decline for a seventh week, the survey showed.

The industry-funded American Petroleum Institute in Washington will release its supply data today.

--Editors: Rachel Graham, Raj Rajendran

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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


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