Bloomberg News

Oil Heads for Weekly Decline on Economic Concern, Europe Debt

December 10, 2011

Dec. 9 (Bloomberg) -- Oil fell, heading for the biggest weekly decline since September, as investors speculated that Europe’s debt crisis will weaken the global economy and curb demand for commodities.

Futures dropped as much as 0.8 percent after sliding 2.1 percent yesterday. Chinese industrial production slowed last month and Japan said its economy grew less than initially estimated last quarter. Oil briefly pared its decline after euro-area countries agreed on measures to ease the region’s crisis, while failing to reach an accord with all European Union members. Saudi Arabia, the world’s largest crude exporter, is in no rush to agree to new output quotas at an OPEC meeting Dec. 14, Oil Minister Ali al-Naimi said.

“Europe is the driving feature of all these risk markets,” said Ric Spooner, a chief analyst at CMC Markets in Sydney. “The obvious implications for all commodity markets is if we’re going to continue to have poor confidence levels, then that’ll impact negatively on world demand and has the potential to soften prices.”

Crude for January delivery fell as much as 79 cents to $97.55 in electronic trading on the New York Mercantile Exchange and was at $98.01 at 9:50 a.m. London time. Prices are down 2.9 percent this week, poised for the biggest decline since the period ended Sept. 23. Futures have gained 7.2 percent this year after climbing 15 percent in 2010.

Brent oil for January settlement on the London-based ICE Futures Europe exchange slid 37 cents, or 0.3 percent, to $107.74 a barrel. The European benchmark contract was at a premium of $9.61 to New York-traded West Texas Intermediate grade. The spread was a record $27.88 on Oct. 14.

China, Japan

Factory output in China, the world’s second-biggest crude consumer, climbed 12.4 percent in November from a year earlier, the lowest growth since August 2009, according to the nation’s statistics bureau. Car sales rose 0.3 percent, the least in six months, the China Association of Automobile Manufacturers said. Japan’s economy grew at an annualized 5.6 percent pace last quarter, compared with the government’s initial estimate of 6 percent.

European leaders agreed to add as much as 200 billion euros ($267 billion) to funds to fight the debt crisis and bowed to demands from the European Central Bank to tighten rules to curb deficits. ECB President Mario Draghi hailed the deal. Oil slid yesterday after he signaled the bank won’t increase government bond purchases.

Not Unanimous

French President Nicolas Sarkozy said the agreement doesn’t cover all 27 members of the EU after British Prime Minister David Cameron made “unacceptable” demands. Leaders would have preferred a unanimous agreement on ways to strengthen the region, according to European Commission President Jose Barroso.

Oil also fell before the Organization of Petroleum Exporting Countries meets next week in Vienna. Group members will probably fail to agree on new production quotas as Saudi Arabia pumps crude at the fastest rate in more than 30 years and Iran faces losing customers because of European sanctions, according to analysts surveyed by Bloomberg News. Brent crude is down 9 percent since the last OPEC meeting on June 8.

European Union governments will consider imposing stiffer sanctions on Iran amid “serious and deepening concerns” over the country’s nuclear program, according to a draft EU summit statement. Foreign ministers will decide on the next set of sanctions Jan. 30, the statement showed. Japan’s government said today that it issued new sanctions against Iran.

Iran pumped about 5 percent of the world’s crude last year, based on BP Plc’s annual Statistical Review of World Energy. The country is on the Strait of Hormuz, through which about a fifth of global oil supply is transported, according to the U.S. Energy Department.

Technical Support

The EU nations accounted for about 16 percent of global oil demand last year, China for 11 percent and Japan 5 percent, according to BP. The U.S., the largest crude consumer, used 21 percent.

Oil in New York has technical support along the middle Bollinger Band on the daily chart, around $97.60 a barrel, according to data compiled by Bloomberg. Buy orders tend to be clustered near chart-support levels.

Crude may fall next week on speculation European leaders won’t calm market concern over the debt crisis, a Bloomberg News survey showed. Eleven of 27 analysts and traders, or 41 percent, forecast oil will decrease through Dec. 16. Nine respondents, or 33 percent, predicted futures will increase and seven estimated there will be little change. Last week, 46 percent of survey respondents projected a price drop.

Nymex will cut the margin requirement on crude and heating oil futures from the close of business Dec. 12, CME Group Inc., the exchange’s parent company, said yesterday. The margin for light sweet crude will be $7,560 per contract, 6.7 percent lower than the current level. The exchange last reduced the margin to $8,100 from $8,437.50 in May.

--With assistance from Yee Kai Pin in Singapore. Editors: Rachel Graham, Raj Rajendran

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

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


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