Bloomberg News

Oil Declines as European Outlook Overshadows Iranian Tension

January 08, 2012

Jan. 6 (Bloomberg) -- Oil slipped for a second day as speculation Europe is headed for a recession overshadowed concern that tensions with Iran may lead to a disruption in Middle East shipments.

Futures decreased 0.3 percent as the euro dropped to the lowest level versus the dollar since September 2010. Crude surged to the highest price in almost eight months this week after Iran threatened to block the Strait of Hormuz and European ministers discussed an embargo on oil imports from the country.

“The weaker euro is making people nervous and leading the market lower,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “Iranian concerns aren’t on the front page today. It was worries about Iran that sent us higher earlier in the week.”

Crude oil for February delivery fell 25 cents to $101.56 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 30. The contract climbed 2.8 percent this week. Prices advanced 8.2 percent in 2011.

Brent oil for February settlement increased 32 cents, or 0.3 percent, to end the session at $113.06 a barrel on the London-based ICE Futures Europe exchange.

The euro dropped 0.5 percent to $1.2723 at 3:05 p.m. New York time after touching a 15-month low of $1.2698 in intraday trading. A weaker common currency and stronger dollar decrease oil’s appeal as an investment alternative.

Consumer Sentiment

An index of executive and consumer sentiment in the 17- nation euro area declined to 93.3 in December, the European Commission in Brussels said today. That’s in line with the median of 19 economists’ estimates in a Bloomberg survey. German factory orders fell 4.8 percent in November, the most in almost three years, according to the Economy Ministry in Berlin.

French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet on Jan. 9 to discuss Europe’s new fiscal pact before a EU summit at the end of the month. Luxembourg Prime Minister Jean-Claude Juncker said on Jan. 4 that the EU is on the brink of a recession of unknown scope.

Futures rose as much as 1 percent earlier after U.S. Labor Department figures showed a 200,000 increase in payrolls during December and the unemployment rate fell to 8.5 percent.

American employers were projected to add 155,000 jobs in December, according to the median of 86 economist estimates in a Bloomberg News survey. The unemployment rate, derived from a separate survey of households, was forecast to climb to 8.7 percent, according to the survey median.

For all of 2011, employers added 1.64 million workers, the best year for the American worker since 2006, after a 940,000 increase in 2010.

$90 Oil

“It’s clear that the U.S. economy is ticking along now,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “If you take away Iran, we’re still looking at $90 oil, even with the prospect of stronger U.S. demand.”

A European Union embargo on Iranian oil will probably be phased in to protect countries with the greatest reliance on imports from the country, according to an EU official familiar with the talks. Foreign ministers are likely to agree to block Iranian oil imports at a meeting in Brussels on Jan. 30, and working groups are negotiating the details, said the official, who declined to be identified because the talks are private.

Japan plans to express its concerns about a possible embargo on Iranian oil to Treasury Secretary Timothy Geithner when he visits Tokyo next week, Chief Cabinet Secretary Osamu Fujimura said. Japan, which imports almost all of its energy supplies, is the world’s second-biggest buyer of Iranian crude after China.

Nuclear Program

Western countries have imposed sanctions on Iran because they allege the country’s nuclear-development program is aimed at building atomic weapons. Iran says the plans are for civilian purposes and to generate electricity.

The Iranian Revolutionary Guard Corps will hold large-scale exercises in the Strait of Hormuz and the Persian Gulf next month, the state-run Fars news agency reported today. The country, the third-largest oil exporter globally, has threatened to shut the Strait of Hormuz, a transit route for almost a fifth of the world’s oil.

“There’s no question that blocking the Strait of Hormuz would cause a price spike, but there’s a growing realization that it would be difficult for Iran to close it for any length of time,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. “It really doesn’t make a lot of sense for them to close it.”

Oil volume in electronic trading on the Nymex was 529,093 contracts as of 3:05 p.m. in New York. Volume totaled 580,873 contracts yesterday, 4 percent below the three-month average. Open interest was 1.4 million contracts, the highest level since Nov. 11.

--With assistance from Thomas Penny in London. Editors: Margot Habiby, Dan Stets

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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