Oil Declines on European Economic Concern; Brent Premium Rises
Futures dropped as much as 0.9 percent before political leaders in Greece meet today to discuss a detailed agreement for meeting the terms of an international financial rescue. The premium of London-traded Brent oil to New York contracts rose for an eighth day after militants in Nigeria, Africa’s biggest crude producer, attacked and damaged a pipeline.
“The potential now is for disappointment out of Europe,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “I suspect this one is going to drag on a fair bit. This echoes the very disappointing rhetoric we’ve heard out of Europe many times before.”
Crude for March delivery slid as much as 89 cents to $96.95 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.97 at 4:32 p.m. Singapore time. The contract rose $1.48 to $97.84 on Feb. 3, the highest settlement since Jan. 31. Prices are down 1.9 percent this year.
Brent oil for March settlement on the London-based ICE Futures Europe exchange dropped as much as 68 cents, or 0.6 percent, to $113.90 a barrel. The European benchmark contract was at a premium of $17.06 to New York-traded West Texas Intermediate, the widest since Nov. 8. The spread was a record $27.88 on Oct. 14.
Greece’s interim Prime Minister Lucas Papademos and the three party leaders backing his government will meet at about midday, a spokeswoman from the premier’s office said today by telephone. The parties aim to provide a detailed response to the European Union, European Central Bank and International Monetary Fund on economic measures to meet the requirements for a 130 billion-euro ($170 billion) aid package.
“The market is not that confident that all is good,” in Europe, said Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity markets newsletter in Sydney. “We might get some clarification. We really have to wait and see.”
The 27 member states of the EU accounted for 16 percent of global oil demand last year, according to BP Plc’s annual Statistical Review of World Energy.
In Nigeria, the Movement for the Emancipation of the Niger Delta said it carried out a Feb. 4 attack on a pipeline belonging to a unit of Italy’s Eni SpA in the country’s oil-rich south. About 4,000 barrels a day of production was lost, the Rome-based company said in an e-mailed statement yesterday.
Attacks by militant groups in the delta cut Nigeria’s output by more than 28 percent from 2006 to 2009, according to data compiled by Bloomberg. The nation, a member of the Organization of Petroleum Exporting Countries, produces low- sulfur crude similar to Brent.
Brent’s premium also widened on concern supplies will be disrupted from Iran, the second-biggest OPEC member. Israeli Foreign Minister Avigdor Liberman traveled to the U.S. yesterday to discuss security matters including an EU decision to place sanctions on Iranian oil exports. The Persian Gulf nation has threatened to shut the Strait of Hormuz, a transit route for about a fifth of the world’s oil, in response to an embargo.
Israeli Defense Minister Ehud Barak said Feb. 2 the country must consider conducting “an operation” to halt Iran’s nuclear program. U.S. President Barack Obama said in an NBC television interview yesterday he doesn’t think Israel has decided what to do about Iran and that military activity in the Persian Gulf would have a “big effect” on oil prices.
“Brent seems to be more sensitive to tensions regarding the European oil embargo” and tension between Israel and Iran, Stephen Schork, president of Schork Group Inc., a consultant in Villanova, Pennsylvania, said in an e-mailed note today.
Oil’s advance in New York is stalling as the moving average convergence-divergence indicator slips below zero for the first time in about seven weeks, signaling weakness, according to data compiled by Bloomberg. Futures have technical support along the 200-day moving average at $94.87 a barrel today. Buy orders tend to be clustered near chart-support levels.
Crude may fall this week as declining U.S. demand pushes up inventories, based on a Bloomberg News survey. Fourteen of 34 analysts and traders, or 41 percent, forecast futures will drop through Feb. 10. The country’s petroleum demand declined to 17.7 million barrels a day in the week ended Jan. 27, the lowest since May 1999, the Energy Department reported Feb. 1.
“That weakness in U.S. demand seems to be the only major negative on the oil market at the moment,” CMC’s McCarthy said.
Hedge funds cut bullish bets on oil by 1.4 percent in the week through Jan. 31, according to data from the U.S. Commodity Futures Trading Commission.
Feb 6, 2012