Oil pared losses and struggled to the first weekly gain in six weeks on the possibility that discussions by European finance officials this weekend would yield a bailout for Spain.
Crude rebounded by $1.21 in the last 20 minutes of floor trading as Spain prepared to become the fourth of the 17 euro- area countries to seek emergency assistance. Earlier, oil dropped as much as 3.3 percent after Federal Reserve Chairman Ben S. Bernanke damped expectations for monetary stimulus.
“People are thinking that there might be some good news coming out of Europe over the weekend,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Maybe the worst is out and people don’t want to be short. Bernanke’s comments really hammered the market.”
Oil for July delivery fell 72 cents, or 0.8 percent, to settle at $84.10 a barrel on the New York Mercantile Exchange. Prices rose 1 percent this week. They have decreased 15 percent this year.
Brent for July settlement slid 46 cents, or 0.5 percent, to $99.47 a barrel on the London-based ICE Futures Europe exchange.
“There’s room for prices to go up if you get any form of supportive government policy,” said Amrita Sen, a London-based analyst at Barclays Capital.
European Central Bank Vice President Vitor Constancio said today that a Spanish request is “awaited” and will be “exclusively directed at the recapitalization of banks.”
The bid may come as soon as tomorrow when finance ministers hold a midafternoon conference call, said a German official and a European Union aide, who declined to be identified because the matter is confidential.
Fitch Ratings cut Spain’s long-term credit rating to BBB yesterday and left it two notches from junk, citing the cost of recapitalizing the country’s banking industry and a lengthening recession.
Nymex futures this week traded from $87.03 to $81.21, an eight-month intraday low.
“Do I want to go home short at the bottom part of the range and have all the headline risk?” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. The market is “basically a letdown after Bernanke’s comments yesterday.”
Crude also reduced losses as U.S. stocks advanced as investors awaited the weekend talks. The Standard & Poor’s 500 Index capped its best week in 2012, rising 0.8 percent today.
“Spain is looking to officially ask for the bailout over the weekend,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Bernanke really let the markets down with his failure to signal a real disposition toward more easing.”
Prices dropped to as low as $82 in intraday trading on comments by Bernanke yesterday that Fed officials need to assess the risk from Europe and U.S. budget cuts before deciding on stimulus measures.
The Fed “remains prepared to take action as needed,” he said in congressional testimony yesterday, refraining from discussing steps the central bank might take to protect the economic expansion. “The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely.”
Prices also fell as German exports decreased for the first time this year in April as Europe’s debt crisis and weaker global growth reduced consumption, the Federal Statistics Office in Wiesbaden said today.
“Germany is the linchpin of the whole euro zone, and if they are slowing, that’s going to add more negative news to the markets,” Ilczyszyn said. “There is no growth right now, no oil demand.”
The European sovereign debt crisis that began in Greece and then moved to Ireland, Portugal, Italy and Spain has reduced economic growth and fuel consumption.
“Big declines” in demand are foreseen in Europe and the U.S. this year from 2011, the International Energy Agency said in its monthly Oil Market Report on May 11.
China, the world’s second-biggest oil user after the U.S., will reduce gasoline and diesel prices by the most since December 2008 after global crude costs slumped, the National Development and Reform Commission, the nation’s top economic planner, said on its website today. The cut is equivalent to a 5.5 percent drop in average retail gasoline prices, based on government data.
Electronic trading volume on the Nymex was 598,032 contracts as of 4:15 p.m. in New York. Volume totaled 684,204 contracts yesterday, 21 percent above the three-month average. Open interest was 1.46 million.
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