Bloomberg News

Oil Rises as Europe May Increase Effort to Contain Debt Crisis

November 27, 2011

Nov. 25 (Bloomberg) -- Oil rose on speculation that euro- area leaders will do more to fight the debt crisis and on concern that tension in the Middle East will disrupt supply.

Futures gained 0.6 percent, paring a second weekly loss, after Italian Prime Minister Mario Monti said that German Chancellor Angela Merkel and French President Nicolas Sarkozy would support Italy. Four people died in Saudi Arabia this week in clashes between Shiite Muslims and security forces.

“The market’s focus is definitely on Europe,” said Carl Larry, president of Oil Outlooks & Opinions LLC in New York. “Any kind of action that Europe is going to take will make a difference. Geopolitical concern also played a role.”

Crude oil for January delivery gained 60 cents to settle at $96.77 a barrel on the New York Mercantile Exchange. Prices dropped 0.7 percent this week, the second straight decline after six weeks of increases.

Brent oil for January settlement decreased $1.38, or 1.3 percent, to $106.40 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to West Texas Intermediate, the New York benchmark, declined to $9.63 from $11.61 yesterday.

Merkel and Sarkozy “confirmed their support for Italy, saying that they are aware that the collapse of Italy would inevitably lead to the end of the euro,” Monti said, according to an e-mailed statement from his office.

France Embargo Call

Oil also rose as France’s call for a European embargo on crude supplies from Iran increases a geopolitical premium on prices, according to Gordon Kwan, head of energy research at Mirae Asset Securities Ltd. in Hong Kong.

Iran “has a grip” over the Strait of Hormuz, through which about a third of seaborne oil cargoes from the Middle East pass, Kwan said in e-mailed comments today. Potential military confrontations over Iran’s nuclear program will keep Brent about $10 to $15 a barrel higher than New York futures, he said.

“There’s still a significant risk premium, with sanctions on Iran and unrest in Egypt and Syria,” said Filip Petersson, a commodities strategist at SEB AB in Stockholm.

The clash in Saudi Arabia took place in the oil-rich Eastern Province. Saudi Arabia’s Shiite minority is concentrated in the kingdom’s eastern oil-producing hub, which lies across a 16-mile (26-kilometer) causeway from Shiite-majority Bahrain. Saudi Arabia is the largest producer in the Organization of Petroleum Exporting Countries.

European Debt

Prices fell as much as 1.2 percent earlier as the cost of insuring against default on European financial-company debt climbed to a record.

The Markit iTraxx Financial Index linked to senior debt of European 25 banks and insurers increased 5 basis points to a record of 350 and the subordinated gauge gained 6 basis points at 601, according to JPMorgan Chase & Co. An increase signals worsening perceptions of credit quality.

Spanish two-year notes slid today, pushing the yield to more than 6 percent for the first time since the euro was created in 1999. Hungary, which last week turned to the International Monetary Fund for help, lost its investment-grade rating at Moody’s Investors Service.

Oil may fall next week, a Bloomberg News survey of traders and analysts showed. Sixteen of 28 analysts, or 57 percent, forecast oil will fall through Dec. 2. Seven, or 25 percent, predicted a gain, and five said there will be little change.

The Nymex trading floor closed at 1:30 p.m. New York time today, an hour earlier than usual, on the day after the U.S. Thanksgiving Day holiday.

Oil volume in electronic trading on the Nymex was 295,305 contracts as of 2:03 p.m. in New York. Volume totaled 512,590 contracts on Nov. 23, 23 percent below the three-month average. Open interest was 1.29 million contracts.

--With assistance from Grant Smith in London. Editors: Richard Stubbe, Dan Stets

To contact the reporter 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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