Bloomberg News

Oil Drops After German Bond Sale Signals Deepening Euro Crisis

November 23, 2011

Nov. 23 (Bloomberg) -- Oil dropped from a three-day high in New York as a shortfall of bids in a German bond sale signaled a deepening of Europe’s debt crisis and slowing economic growth in the region.

Futures fell as much as 2.3 percent after Germany failed to get sufficient bids at an auction of benchmark 10-year bunds today to reach its maximum sales target. European services and manufacturing output contracted for a third month in November as the worsening debt crisis pushed the region closer to a recession. The American Petroleum Institute said yesterday motor-fuel supplies climbed 5.42 million barrels last week.

“Europe’s core is under attack,” said Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, who correctly predicted this month that crude prices would fall. “It’s getting harder and harder for Europe to escape austerity and a possible credit crunch in the same fashion as 2008.”

Crude oil for January delivery on the New York Mercantile Exchange fell as much as $2.25 to $95.76 a barrel and was at $96.45 at 1:48 p.m. London time. The contract gained 1.1 percent yesterday to $98.01, the highest close since Nov. 17. Prices are up 5.6 percent this year.

Brent oil for January settlement decreased as much as $1.70 to $107.33 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to West Texas crude widened to $11.42 a barrel from $11.02 at yesterday’s settlement. The spread rose to a record of $27.88 on Oct. 14.

Output Slows

A euro-area composite index based on a survey of purchasing managers in both industries rose to 47.2 from 46.5 in October, London-based Markit Economics said in an initial estimate today. Economists forecast a drop to 46.1, according to the median of 17 estimates in a Bloomberg News survey.

“A recession is very likely for the euro zone,” said James Zhang, a strategist at Standard Bank Plc in London. “Still, oil market fundamentals are fairly tight as global inventories continue to draw.”

An Energy Department report today may show an increase of 1 million barrels in gasoline supplies, according to the median of 13 analysts surveyed by Bloomberg News.

Crude inventories fell 5.57 million barrels to 335.7 million last week, the API said, compared with a forecast for a 500,000 gain in the Bloomberg survey. Distillate fuel inventories dropped 886,000 barrels to 138.1 million, the API’s weekly report showed. They are projected to decline 1.25 million barrels, the survey shows.

Inventories at Cushing, Oklahoma, the delivery point for futures traded on the New York Mercantile Exchange, rose 791,000 barrels to 32.8 million.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

--Editors: John Buckley, Rob Verdonck

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net 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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