Bloomberg News

Oil Falls to Six-Month Low on Europe

May 18, 2012

Oil dropped to a six-month low in New York on concern that Greece will have to exit the euro system, compounding Europe’s debt troubles and curbing fuel demand.

Futures declined 1.2 percent after German Finance Minister Wolfgang Schaeuble said that market turmoil caused by the euro- zone crisis may last two more years. Crude capped its third weekly decline as U.S. consumer confidence fell and oil supplies rose to a 22-year high. Prices are down 11 percent this quarter after climbing 4.2 percent during the previous three months.

“All of the macroeconomic news has been negative,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “Oil is moving on what’s happening in Europe and what it will mean here. In February, people were afraid to sell oil and now they’re afraid to buy it.”

Crude oil for June delivery fell $1.08 to $91.48 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 26. Prices retreated 4.8 percent this week are down 7.4 percent this year.

Brent oil for July settlement declined 35 cents, or 0.3 percent, to end the session at $107.14 a barrel on the London- based ICE Futures Europe exchange. The European benchmark closed at the lowest level since Dec. 20.

Brent’s premium to the July West Texas Intermediate contract in New York widened to $15.34 from $14.30 the day after Enbridge Inc. and Enterprise Products Partners LP said they would reverse flows on the Seaway pipeline this weekend.

The Brent contract may decline to the $99 to $100 lows seen in August and September after breaking through long-term support in the $108.50 to $109.20 area, according to a note by Stephanie Aymes, a technical analyst at Societe Generale SA in London.

G-8 Meeting

Schaeuble’s comments came as Group of Eight leaders including German Chancellor Angela Merkel prepared to discuss Greece and its impact on the global economy. The G-8 meeting begins tonight at the Camp David presidential retreat in rural Maryland. The group includes the leaders of the U.S., U.K., Germany, France, Italy, Japan, Russia and Canada.

Silke Bruns, a Finance Ministry spokeswoman, said today that the German government has a duty to prepare for a potential Greek exit from the euro zone.

Greece’s credit rating was downgraded one level late yesterday by Fitch Ratings amid concern that the country won’t be able to muster the political support needed to sustain its membership in the euro area.

“It’s pretty well known that whatever happens in Europe, it’s probably going to have a negative impact on the U.S. economy,” said Jacob Correll, a commodity analyst at Summit Energy Inc. in Louisville, Kentucky. “The momentum for the global crude complex in the short term is moving lower.”

‘Extraordinary Importance’

President Barack Obama called the European debt crisis an issue of “extraordinary importance” to the global economy and said that fiscal responsibility should be coupled with policies to promote growth. Obama made the comments after meeting with French President Francois Hollande at the White House, hours before they join other G-8 leaders at Camp David.

Consumer confidence in the U.S. dropped last week to the lowest level since the end of January, the New York-based Conference Board said yesterday. The Federal Reserve Bank of Philadelphia’s general economic index shrank in May, a separate report on that day showed.

U.S. crude oil supplies rose 2.13 million barrels to 381.6 million in the week ended May 11, the highest since 1990, the Energy Department said May 16. Stockpiles at Cushing, Oklahoma, the delivery point for New York futures, increased 1 million barrels to a record 45.1 million.

Seaway Pipeline

The reversed Seaway pipeline will initially be able to deliver 150,000 barrels a day of oil from Cushing to the Gulf Coast, relieving the supply glut in the center of the U.S. Capacity on the 500-mile (805-kilometer), 30-inch line will increase to more than 400,000 barrels a day in the first quarter of 2013, the companies said in a statement yesterday.

The fall in oil accelerated after U.S. equities dropped as Facebook Inc.’s record initial public offering failed to boost market confidence. The Standard & Poor’s 500 Index declined 0.7 percent and the Dow Jones Industrial Average fell 0.6 percent.

Prices surged to $110.55 on March 1, the highest intraday level since May 4, 2011, on concern that Western sanctions aimed at halting Iran’s nuclear program would disrupt Middle East crude shipments. Iran and the world powers broke a 15-month stalemate during talks April 14 in Istanbul. Negotiations are set to resume May 23 in Baghdad.

Emergency Reserves

Obama and the other G-8 leaders will assess the impact of Iranian sanctions on oil prices, National Security Adviser Tom Donilon said yesterday. The U.S. and its allies have weighed the use of strategic oil reserves to protect the global economy as they prepare for a European Union ban on Iranian imports taking effect in July.

The International Energy Agency has no definite plan to release fuel from its emergency reserves, said David Fyfe, the head of its oil industry and markets division, at a conference in London today.

Electronic trading volume on the Nymex was 513,949 contracts as of 4:16 p.m. in New York. Volume totaled 636,371 contracts yesterday, 6.6 percent above the three-month average. Open interest was 1.54 million.

To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net; 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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