Bloomberg News

Oil Falls as Europe Debt Concern Counters Shrinking U.S. Supply

November 16, 2011

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

Futures dropped as much as 0.5 percent, erasing a 0.2 percent gain. Italy’s borrowing costs climbed to the highest since June 1997 at an auction yesterday, signaling Europe’s crisis may be worsening. U.S. crude and fuel inventories probably shrank for a second week, according to a Bloomberg News survey before an Energy Department report tomorrow.

“There is still a lot of uncertainty over Europe,” said Ken Hasegawa, a commodity-derivatives trading manager at Newedge Group in Tokyo who says futures will trade between $95 and $100 a barrel this week. “Last night’s decline was a correction but the downside will be limited from a technical point of view.”

Crude for December delivery declined as much as 51 cents to $97.63 a barrel in electronic trading on the New York Mercantile Exchange. It was at $97.76 at 3:31 p.m. Singapore time. Yesterday, the contract dropped 85 cents to $98.14. Prices have increased 7 percent this year, after rising 15 percent in 2010.

Brent oil for December settlement on the ICE Futures Europe exchange, which expires today, was up 17 cents at $112.06 a barrel. The more actively traded January contract climbed 7 cents to $111.35.

‘Fair’ Price

The European benchmark crude was $14.30 a barrel higher than New York futures, after ending yesterday at a $13.75 premium, the lowest since May 25. The spread is down 49 percent from a record $27.88 on Oct. 14.

Brent crude at $100 to $110 a barrel is fair for producers and consumers, Algerian Oil Minister Youcef Yousfi said yesterday in Doha. Oil ministers from Iran, Nigeria and Algeria, which are members of the Organization of Petroleum Exporting Countries, said Nov. 13 that markets aren’t oversupplied. The 12-member group is scheduled to meet Dec. 14 in Vienna.

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, according to Hasegawa at Newedge. The indicator was at $95.15 today, based on data compiled by Bloomberg. Buy orders tend to be clustered near chart-support levels.

Hedge-Fund 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, according to the CFTC’s Commitments of Traders report.

“We cannot find the sudden, sharp decline in global oil supplies, nor the sudden, sharp increase in global demand that warrants the spike in oil prices,” Stephen Schork, president of The Schork Group Inc., a consultant in Villanova, Pennsylvania, said today in an e-mailed report.

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

Italy sold 3 billion euros ($4 billion) of five-year bonds yesterday, the maximum target, to yield 6.29 percent, up from 5.32 percent at the last auction on Oct. 13.

--Editors: Paul Gordon, Christian Schmollinger

To contact the reporter on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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