Bloomberg News

Oil Falls as Greek Stalemate Spurs Concern Crisis Will Spread

January 24, 2012

Jan. 24 (Bloomberg) -- Oil dropped as a stalemate between European policy makers and Greek bondholders over debt relief increased concern that the European credit crisis will spread.

Futures fell 0.6 percent after euro-area finance ministers balked at putting up more public money for Greece, calling on holders of its debt to provide more aid. The International Monetary Fund cut its global economic forecast as Europe slips into recession and growth cools in China and India.

“The Greek debt impasse is weighing on the market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The IMF warning this morning dampened any economic optimism.”

Crude oil for March delivery fell 63 cents to settle at $98.95 a barrel on the New York Mercantile Exchange. Prices are up 13 percent from a year earlier.

Futures were little changed from the settlement after the American Petroleum Institute reported that crude oil inventories rose 7.33 million barrels to 337.4 million last week. March crude decreased 52 cents, or 0.5 percent, to $99.06 a barrel in electronic trading at 4:32 p.m.

Brent oil for March settlement dropped 55 cents, or 0.5 percent, to end the session at $110.03 a barrel on the London- based ICE Futures Europe exchange.

The Standard & Poor’s 500 Index declined 0.1 percent and the Dow Jones Industrial Average fell 0.3 percent. The S&P 500 retreated from the highest level since July because of the Greek stalemate. Yesterday, the index extended a rebound from its 2011 low to almost 20 percent.

‘Demand Fears’

“The European debt crisis has crept back up into the forefront with the Greek concerns,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The lowering of the IMF growth forecast is playing into demand fears.”

The world economy will expand 3.3 percent this year and 3.9 percent in 2013, compared with September forecasts of 4 percent and 4.5 percent, the IMF said. The euro area may enter a “mild recession” this year and contract 0.5 percent compared with a previous estimate of a 1.1 percent expansion. The U.S. outlook was held at 1.8 percent growth.

China’s estimated expansion was cut to 8.2 percent from 9 percent. India is expected to grow 7 percent in 2012, 0.5 percentage point less than in September forecasts.

European Economy

European services and factory output climbed in January. A euro-area composite index based on a survey of purchasing managers in both industries rose to 50.4, a five-month high, from 48.3 in December, London-based Markit Economics said in a report today.

The composite PMI was forecast to rise to 48.5, according to the median of 17 economist estimates in a Bloomberg survey. A reading below 50 indicates contraction.

“The strong PMI data from Europe is putting a floor under the market,” said Chris Dillman, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The 27 member states of the European Union accounted for 16 percent of global consumption in 2010, according to BP Plc’s annual Statistical Review of World Energy.

Crude prices climbed earlier as Iran criticized a European embargo on its crude exports without repeating threats to disrupt shipping in the Persian Gulf.

European Union foreign ministers agreed to ban oil imports from Iran starting July 1 as part of measures to ratchet up the pressure on the Persian Gulf nation’s nuclear program, the 27- nation bloc said in a statement yesterday.

Iranian Threat

Iranian Vice President Mohammad Reza Rahimi threatened on Dec. 27 to block the Strait of Hormuz, the transit route for about a fifth of the world’s oil, if the EU banned the country’s oil exports.

“There’s been a lot of talk from Iran but no concrete action,” Flynn said. “There’s been a sigh of relief since the sanctions were announced and there’s no sign that the Strait of Hormuz will be blocked.”

U.S. oil inventories probably rose by 1.45 million barrels last week, according to the median estimate of 12 analysts polled before a weekly Energy Department report tomorrow. Gasoline supplies rose 2 million barrels, the survey showed. Stockpiles of distillate fuel, a category that includes diesel and heating oil, declined 125,000 barrels.

Oil volume in electronic trading on the Nymex was 440,518 contracts as of 4:30 p.m. in New York. Volume totaled 423,323 yesterday, the lowest level since Dec. 30 and 30 percent below the three-month average. Open interest was 1.34 million contracts.

--Editors: Margot Habiby, Charlotte Porter

To contact the reporter 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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