Bloomberg News

Oil Trades Near Six-Week Low as Hopes for Europe Solution Fade

December 20, 2011

Dec. 19 (Bloomberg) -- Oil traded near its lowest in more than six weeks in New York on concern that European government measures to stem the debt crisis will be ineffective, leading to weaker growth and lower fuel demand.

European Union finance ministers will hold a conference call today addressing a self-imposed deadline for drawing additional aid and creating new budget rules. Europe’s crude demand may drop 2.8 percent in the first quarter of 2012 from this year’s fourth quarter, the International Energy Agency forecast on Dec. 13. Crude fell as much as 1.1 percent after the official Korean Central News Agency said North Korean leader Kim Jong Il had died.

“There are enough contradictory pressures on the oil market to go into the holidays with a neutral position,” said Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, who correctly predicted earlier this month that prices would side. “On the bearish side there is the risk of European downgrades, but there’s also the risk of tougher rhetoric against Iran.”

Crude for January delivery on the New York Mercantile Exchange fell as much as 99 cents to $92.54 a barrel and was at $93.55 at 9:31 a.m. London time. The contract, which expires tomorrow, fell as low as $92.52 on Dec. 16, the lowest price since Nov. 3. The more actively traded February futures were at $93.79, up 4 cents. Prices are 2.4 percent higher this year after rising 15 percent in 2010.

Brent oil for February settlement on the London-based ICE Futures Europe exchange was at $103.60 a barrel, up 25 cents, after declining as much as 98 cents, or 1 percent, to $102.37 a barrel. The European benchmark contract was at a premium of $9.79 to New York-traded West Texas Intermediate grade for the same month. The front-month spread was a record $27.88 on Oct. 14.

Heart Attack

Kim, the second-generation North Korean dictator who defied global condemnation to build nuclear weapons while his people starved, died Dec. 17 of a heart attack, state media said today. A government statement called on North Koreans to “loyally follow” his son, Kim Jong Un.

“The near-term direction for the economy is downward, so it doesn’t surprise me that you see prices going down,” said Jeremy Friesen, a commodity strategist at Societe Generale SA in Hong Kong, who said Kim’s death was probably “net” bearish for the market. “There is still a lot of uncertainty.”

Oil in New York has technical support around $92.80 a barrel, the lower of two leading-span lines that define an “ichimoku cloud” on the weekly technical chart, according to data compiled by Bloomberg. The cloud is an area where buy orders tend to be clustered. Futures halted last week’s decline near that level.

‘Demand Picture’

Euro-area finance ministers will hold a conference call at 3:30 p.m. Brussels time to discuss 200 billion euros ($260 billion) in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at a Dec. 9 summit, according to two people familiar with the planning.

“The demand picture is starting to look weak,” said Jonathan Barratt, a managing director at Commodity Broking Services Pty in Sydney, who predicts New York oil may drop to $90 a barrel. “You are seeing continued news that reinforces a slowdown and that’s weighing on the price of crude.”

The 27 EU member states accounted for 16 percent of global oil consumption in last year, based on BP Plc’s Statistical Review of World Energy.

OPEC’s 30 million-barrel-a-day oil production limit may boost prices next year, according to Goldman Sachs Group Inc. The Organization of Petroleum Exporting Countries is pumping 700,000 barrels a day above the target and will have to cut output as supplies increase from Iraq and Libya, David Greely, the bank’s head of energy research in New York, said in a report yesterday. The 12-member group set a new output ceiling for the first time in three years at its Dec. 14 meeting in Vienna.

--With assistance from Yee Kai Pin and Ramsey Al-Rikabi in Singapore. Editors: John Buckley, Randall Hackley

To contact the reporters 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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