Bloomberg News

Crude Falls on OECD Forecast Cut, Iran Inspection Accord

May 22, 2012

Crude in New York slipped after the Organization for Economic Cooperation and Development trimmed economic growth forecasts in the euro area and Iran agreed to let western nuclear inspectors into the country.

The OECD said Europe’s debt crisis risks spiraling and seriously damaging the world economy, which would hamper demand for fuels. Iran and the International Atomic Energy Agency reached an agreement on nuclear inspections, which they will sign in the next days in the Islamic republic, the IAEA’s Secretary-General Yukiya Amano said today in Vienna.

“The macro environment has clearly worsened and we’d expect energy prices to be broadly lower over the next month.” said Guy Wolf, a macro strategist at Marex Spectron Group Ltd., a London-based broker. “Europe is the main factor that can drive oil prices, and a euro-zone breakup would mean a short sharp drop in economic activity.”

Oil for June delivery on the New York Mercantile Exchange, which expires today, was 22 cents lower at $92.35 a barrel in electronic trading as of 1:31 p.m. London time. The more- actively traded July contract fell 16 cents to $92.68. Front- month futures climbed 1.2 percent yesterday and are down 6.6 percent this year.

Brent oil for July settlement dropped as much as 71 cents to $108.10 a barrel on the London-based ICE Futures Europe exchange and was last at $108.98. The European benchmark contract was at a $16.32 a barrel premium to West Texas Intermediate crude, up from $15.95 yesterday.

Gross domestic product in the euro region will shrink 0.1 percent this year and expand 0.9 percent in 2013 instead of posting growth of 0.2 percent and 1.4 percent as predicted last November, the Paris-based OECD said today.

Structured Inspections

Oil prices rose earlier this year as tightening sanctions on Iran curtailed the country’s exports to Europe and raised the threat of a possible interruption of oil tanker traffic in the Persian Gulf.

The United Nations’ nuclear watchdog and the Gulf state will sign a deal on “structured inspections,” the IAEA’s Amano said on his return from talks in Iran.

The U.S., U.K., France, China, Russia and Germany will hold talks tomorrow with Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries, as Western sanctions hamper Iran’s ability to export and get paid for crude. The U.S. won’t support relaxing sanctions when negotiators meet in Baghdad tomorrow, according to officials who declined to be identified because of the issue’s sensitivity.

Optimism Creeping

“We’ve still got problems in the Middle East,” Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity- markets newsletter in Sydney, said in a Bloomberg Television interview. “I can start to see a little level of optimism creeping into the market, and that should support the price. We are at the lower end, and I think we’re heading back through to $100 a barrel” for New York crude, he said.

U.S. crude inventories probably rose 1.5 million barrels last week, a separate Bloomberg News survey showed before an Energy Department report tomorrow. It will be the ninth week of gains. Gasoline supplies may have climbed 500,000 barrels, according to the median estimate of nine analysts.

The industry-funded American Petroleum Institute will release separate stockpile data today.

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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