Bloomberg News

Oil Falls to 2012 Low on Greek Debt, Saudi Call for Drop

May 14, 2012

Oil fell below $94 a barrel in New York for the first time since December as Europe’s debt crisis worsened and Saudi Arabia’s energy minister said prices should decline further.

West Texas Intermediate slid as much as 2.6 percent to the lowest level this year. Brent crude, trading at about $110 a barrel today, should drop to $100 as supply outweighs demand, Saudi Oil Minister Ali al-Naimi said yesterday in Adelaide, Australia. Futures also slipped after Greece failed to agree on a unity government and European Union officials considered the nation’s possible exit from the euro. Hedge funds cut bullish bets on oil by the most in three years, data showed last week.

“It’s about Greece and a potential exit from the euro zone, which more and more people expect within months or even weeks,” said Hannes Loacker, analyst at Raiffeisen Bank International AG in Vienna, who correctly predicted last month that oil was set to drop. “And then it’s about fundamentals, with U.S. crude stocks high and demand in the developed world still weak.”

Crude for June delivery fell as much as $2.48 to $93.65 a barrel in electronic trading on the New York Mercantile Exchange, the lowest front-month intraday price since Dec. 19. It was at $94.12 at 1:43 p.m. London time. Prices slid 95 cents to $96.13 on May 11 and are down 4.8 percent this year.

Brent for June settlement tumbled $1.76, or 1.6 percent, to $110.50 a barrel on the London-based ICE Futures Europe exchange. The North Sea crude ended the May 11 session at $112.26, the lowest for a contract closest to expiration since Feb. 2. The European benchmark contract’s premium to WTI was at $16.37 a barrel today.

Hammer Patterns

WTI may decline to $90 a barrel, and Brent to $105, as central banks struggle to resolve the debt turmoil, Bank of America Corp. said in a report e-mailed today.

Oil in New York may drop to $88.55 a barrel after breaking so-called hammer patterns, according to technical analysis by FuturesTechs.com Ltd.

Supply outweighs demand by 1.3 million to 1.5 million barrels a day, according to al-Naimi. Consumption may rebound in the second half of 2012, he said. Saudi Arabia, the world’s biggest crude exporter, pumped 10.1 million barrels a day in April, about 200,000 barrels more than the previous month and the highest in more than three decades, a report by the Organization of Petroleum Exporting Countries showed May 10.

“We want a lower price than where it is now,” al-Naimi said. “We need to get the price to a level of around $100” a barrel for Brent.

Recovery Threat

Saudi Arabia is optimistic that it will discover more oil and gas in the Red Sea and increase recovery rates, al-Naimi said at a conference. The country plans to boost the amount of crude that it can extract from its biggest producing fields to 70 percent from 50 percent currently, he said.

Crude prices are high because of global instability, and the European Union sanctions against Iran that take effect from July 1 are already factored in, Christophe de Margerie, Total SA (FP)’s chief executive officer said at the conference.

Hedge funds cut bullish oil bets by the most in three years the week before the Seaway pipeline begins to ease a stockpile glut, while rising output and concern over Europe’s financial woes sent prices tumbling.

Seaway Pipeline

Enbridge Inc. and Enterprise Products Partners LP plan to reverse shipments on the 150,000 barrel-a-day Seaway line from Cushing to the Gulf Coast on about May 17, according to an April 13 filing with regulators.

Money managers reduced net-long positions on oil, or wagers prices will rise, by 33 percent in the seven days ended May 8, according to the Commodity Futures Trading Commission’s Commitments of Traders report on May 11. It was the largest drop since the week ended April 21, 2009.

In London, hedge funds cut bullish bets on Brent crude by 23,308 contracts in the week ended May 8, according to data from ICE Futures Europe.

Long positions, or speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 103,773 compared with 127,081 lots the previous week, the London-based exchange said today in its weekly Commitment of Traders report.

Oil fell for a second week through May 11 as Greece struggled to form a government after inconclusive elections, prompting concern that the country may backtrack on pledges to cut spending in return for international bailouts. That may foreshadow a withdrawal from the euro.

Meetings brokered by Greek PresidentKarolos Papoulias are set to continue today after Syriza, the biggest anti-bailout party, defied overtures to form a unity government. Greek withdrawal “is not necessarily fatal, but it is not attractive,” European Central Bank Governing Council member Patrick Honohan said in Tallinn on May 12. European finance ministers also meet today in Brussels.

“The potential for them to default on their agreements could see them pushed out of the euro,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “That’s what’s really concerning the market.”

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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