Bloomberg News

Oil Declines a Second Day as Europe Ministers Meet Amid Slowdown

October 08, 2012

Crude fell for a second day in New York before a meeting of European officials amid speculation the region’s debt crisis and an economic slowdown in Asia will curb fuel demand.

Futures pared losses after sliding as much as 1.9 percent. Prices capped a third weekly decline on Oct. 5, the longest run of losses since June. Finance ministers meet in Luxembourg today to discuss Spain’s finances and closer banking cooperation. Speculators cut bullish bets on oil in the week ended Oct. 2, a report showed. Economic growth in developing East Asia, including China, will be the slowest since 2001, according to the World Bank.

“Risk aversion is going to continue to increase in the short-term,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, who correctly predicted crude’s rebound at the end of last month. “A solution to the Euro zone crisis is still far away.”

Crude for November delivery dropped as much as $1.67 to $88.21 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.70 at 1:08 p.m. London time. The contract slipped 2 percent to $89.88 on Oct. 5, capping a 2.5 percent loss last week. Prices are down 10.3 percent this year.

Brent for November settlement on the London-based ICE Futures Europe exchange fell as much as $1.48, or 1.3 percent, to $110.54 a barrel. The European benchmark grade crude’s premium to the New York-traded West Texas Intermediate grade widened earlier to $22.71 a barrel, the biggest spread since October 2011.

Bullish Bets

Oil in New York is near a long-term technical support level at $89.83 a barrel, according to data compiled by Bloomberg. On the weekly chart, that’s the 50 percent Fibonacci retracement of the drop to $32.40 in December 2008 from an intraday record high of $147.27 in July that year. Losses tend to accelerate below chart-support levels.

Prices will decline this week, according to a Bloomberg News survey. Twenty-one of 38 analysts and traders predicted crude will decrease through Oct. 12. Thirteen respondents, or 34 percent, said futures will gain and four said there will be little change in prices.

Hedge-fund managers and other large speculators cut net- long positions in WTI crude futures and options by 11,590 contracts, or 6.5 percent, from a week earlier, data from the U.S. Commodity Futures Trading Commission on Oct. 5 showed.

For Brent, money managers raised bullish bets by 6,422 contracts to 113,549 lots in the week ended Oct. 2, the ICE Futures Europe exchange said in its weekly Commitment of Traders report today. That’s the highest level since Sept. 11 and the biggest weekly gain since Aug. 21, the data showed.

Rescue Conditions

German Chancellor Angela Merkel tomorrow will make her first visit to Greece since the debt crisis began in 2009. Spanish Prime Minister Mariano Rajoy travels for talks with French President Francois Hollande on Oct. 10. Leaders have yet to agree on a plan for rescue conditions and centralized bank supervision, a month after European Central Bank President Mario Draghi introduced a proposal to buy bonds to alleviate the crisis.

Economic growth in developing East Asia, which excludes Japan and India, will probably ease to 7.2 percent this year, down from 8.3 percent in 2011 and a May forecast of 7.6 percent, the World Bank said. The slowdown in China has been “significant,” the Washington-based lender said.

The U.S. and China are the world’s biggest crude users, accounting for a combined 32 percent of consumption last year, according to BP Plc’s Statistical Review of World Energy. The European Union used 16 percent.

Record Gasoline

The average price of regular unleaded gasoline reached a record $4.668 a gallon in California, 22 percent more than the national average of $3.818, according to data published today by AAA, the largest U.S. motoring organization. Prices have risen and producers including Exxon Mobil Corp. and Valero Energy Corp. have rationed deliveries as refinery halts cut into the state’s supplies.

“Refinery outages on the West Coast led to significant swings in gasoline prices, as Tesoro and Valero began to ration demand, taking gasoline prices in the area back to all-time highs,” Morgan Stanley said today in a report.

Governor Jerry Brown told state regulators to allow refineries to make an early transition to winter-blend gasoline to help bring pump prices under control, according to a statement yesterday. The grade typically isn’t sold until after Oct. 31 and the end of the smog season because it reduces air quality more than summer gasoline.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net

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


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