Bloomberg News

Oil Falls From 9-Month High on Signs of Europe, China Slowdowns

February 22, 2012

Feb. 22 (Bloomberg) -- Oil fell from a nine-month high as signs of slowing demand in Europe and China countered concern that a conflict between Iran and Western nations may escalate and disrupt supplies from the Persian Gulf producer.

Futures slipped as much as 0.6 percent in New York after an index based on a survey of euro-region purchasing managers unexpectedly declined, signaling a contraction. Manufacturing in China, the world’s second-biggest oil consumer, may shrink for a fourth month. Oil rose earlier after United Nations inspectors in Iran said they were denied access to a suspected nuclear- related military base.

The purchasing manager index indicates that “euro-zone economies will remain very weak in the months ahead,” said Andy Sommer, a senior trader at EGL AG in Dietikon, Switzerland. “That means oil demand in the euro zone remains weak.”

Oil for April delivery on the New York Mercantile Exchange fell as much as 64 cents to $105.61 a barrel and was at $105.78 at 1:49 p.m. London time. The contract earlier rose to $106.41, the most since May 5. Front-month prices have gained 13 percent in the past year.

Brent for April settlement was down 1 cent at $121.65 a barrel on the ICE Futures Europe exchange in London. The European benchmark contract’s premium to New York-traded West Texas Intermediate widened to $15.87 a barrel from $15.41.

“One hundred and twenty dollars, for us, is a cap for prices,” Sommer at EGL said. “Without new supporting bullish news, some reverse had to be expected.”

Nuclear Program

The International Atomic Energy Agency said Iran refused permission to visit the Parchin military base during two days of talks that ended yesterday. An Iranian military commander said his nation would consider pre-emptive action if threatened.

“The fact that the inspectors couldn’t see what they wanted to see is also fuel on the fire,” said Gerrit Zambo, a trader at Bayerische Landesbank in Munich. “Any action, especially in the Strait of Hormuz, will certainly push up oil prices much higher than these levels.”

Israel and the U.S. have said all options are on the table in ensuring the Persian Gulf nation doesn’t acquire atomic weapons. Iran says its nuclear program is for energy.

Speculation that oil supplies will be disrupted has increased as tension between Iran and Western nations escalates, David Greely, head of energy research at Goldman Sachs Group Inc. in New York, said in a report today. The bank maintained a recommendation that investors buy Brent contracts for July 2012 to take advantage of rising prices.

Slowing Growth

A euro-area composite index based on a survey of purchasing managers in services and manufacturing industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate today. Economists in a Bloomberg News survey had forecast a reading of 50.5.

An index of manufacturing in China from HSBC Holdings Plc and Markit Economics was at 49.7 for February, signaling factory activity will shrink a fourth month as Europe’s sovereign-debt crisis damps exports and the housing market cools. Readings below 50 point to a contraction.

Oil’s rally in New York may stall after the 14-day relative strength index climbed above 70, according to data compiled by Bloomberg. A reading higher than that level signals futures may have risen too quickly and further gains probably aren’t sustainable. Investors tend to sell contracts when prices are considered overbought.

Debt Crisis

Agreement on a second bailout for Greece may not be enough to end Europe’s debt crisis and countries in the euro-area periphery must reduce debt and improve competitiveness, Bank of England Deputy Governor Charlie Bean said in a speech yesterday in Glasgow, Scotland.

Crude inventories in the U.S., the world’s biggest user of the commodity, probably climbed to the highest level in almost five months last week as rising North American output and the planned reversal of the Seaway pipeline bolstered stockpiles, a Bloomberg News survey showed.

Gasoline supplies declined 250,000 barrels, according to the median of eight analyst estimates in the survey. Distillate inventories, a category that includes diesel and heating oil, probably fell 1.38 million barrels.

The Energy Department is scheduled to release its weekly report at 11 a.m. tomorrow in Washington, a day later than usual because the government and financial markets were closed for the Presidents’ Day holiday. The industry-funded American Petroleum Institute will publish its own data today.

--With assistance from Yee Kai Pin and Ramsey Al-Rikabi in Singapore and Ben Sharples in Melbourne. Editors: John Buckley, Raj Rajendran

To contact the reporter on this story: Robert Tuttle in Doha at

To contact the editor responsible for this story: Alexander Kwiatkowski at

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