Oil Falls as Greece Wrestles With Agreement to Avert Default
February 06, 2012, 4:12 PM ESTBy Mark Shenk
Feb. 6 (Bloomberg) -- Oil declined in New York on concern that Greece will fail to take sufficient steps to avert a default, threatening Europe’s economy and fuel consumption.
Futures dropped 1 percent as European leaders pressured Greece to accept terms demanded by international lenders on a bailout package. Brent oil in London traded at the biggest premium to the American benchmark grade in 13 weeks as record- low temperatures in Europe bolstered fuel demand.
“There’s disappointment in the market because there’s been no resolution of the Greek crisis,” said Phil Flynn, an analyst at PFGBest in Chicago. “Cold temperatures in Europe along with concerns about Iran and other trouble spots are helping keep Brent strong.”
Crude oil for March delivery fell 93 cents to settle at $96.91 a barrel on the New York Mercantile Exchange. Prices are down 1.9 percent this year.
Greek Prime Minister Lucas Papademos struck a tentative deal with party leaders to extend spending cuts after euro-area finance chiefs told them an increase in the 130 billion-euro ($170 billion) aid package wasn’t forthcoming.
Brent oil for March settlement rose $1.35, or 1.2 percent, to end the session at $115.93 a barrel on the ICE Futures Europe exchange. Today’s close was the highest since Aug. 2.
The Brent contract traded at $19.02 premium to West Texas Intermediate oil, the grade traded in New York, based on settlement prices. It was the widest closing price spread since Nov. 7. Brent’s premium narrowed to $6.82 in intraday trading on Jan. 3 from a record of $27.88 on Oct. 14.
European Cold
A wave of Siberian air is bolstering heating demand in Europe. The cold snap affected more than 50 regions of Russia, where temperatures fell 7 degrees to 12 degrees Celsius below average (13 to 22 degrees Fahrenheit), the country’s Emergency Ministry said on its website. Austria closed part of the Danube River, the continent’s second-longest, because of ice for the first time this year.
The spread also widened as stockpiles at Cushing, Oklahoma, the delivery point for New York futures, advanced 1.48 million barrels to 30.1 million in the week ended Jan. 27, the biggest gain since March, in an Energy Department report Feb. 1.
Prices also fell after the International Monetary Fund said the economic expansion in China, the world’s biggest energy- consuming country, could be cut almost in half this year if Europe’s debt crisis worsens. Growth may drop by as much as 4 percentage points from the fund’s current projection, which is for 8.2 percent, according to report released today by the IMF’s China office in Beijing.
Economic Outlook
“With stagnant growth in Europe likely to be a permanent feature, prices seem a touch overbought and may either consolidate or retrace,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London. “Looking out much further, a recovering U.S. economy, prospects for a soft landing in China and continuing Syrian insurrection will mean higher prices.”
Forces loyal to Syrian President Bashar al-Assad pressed artillery attacks against the central city of Homs after Russia vetoed a United Nations Security Council resolution aimed at ending the fighting. Officials from Syria’s ally Iran have warned they may shut the Strait of Hormuz, passage for a fifth of global oil trade, in response to an embargo on crude sales.
U.S. Economy
Oil in New York climbed for the first time in six days on Feb. 3 after the U.S. jobless rate fell to the lowest level in three years. The Labor Department said the unemployment rate dropped to 8.3 percent in January, the least since February 2009. Nonfarm payrolls increased 243,000, the most since April.
“The Greek crisis is making people mildly bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The U.S. economy is showing signs of strength. We will be on the outlook for signs of a rebound in demand, but there haven’t been any yet.”
U.S. fuel demand dropped 8.3 percent to 17.7 million barrels a day in the week ended Jan. 27, the lowest rate since 1999, an Energy Department report on Feb. 1 showed.
Hedge funds cut bullish bets on oil in New York by 1.4 percent in the week through Jan. 31, according to data from the Commodity Futures Trading Commission. Money managers increased net long positions on Brent crude by 171 contracts to 86,423 lots in the same period, data from ICE Futures Europe exchange in London showed.
Oil volume in electronic trading on the Nymex was 604,829 contracts as of 3:11 p.m. in New York. Volume totaled 754,775 on Feb. 3, 28 percent above the three-month average. Open interest was 1.46 million contracts, the highest since Sept. 13.
--With assistance from Grant Smith in London. Editors: Margot Habiby, Dan Stets
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
