BLBG: Oil Little Changed Amid Concern Debt Crisis May Hinder Demand
By Grant Smith
June 7 (Bloomberg) -- Crude oil traded little changed around $71 a barrel in New York amid concern the government debt crisis in Europe will spread and curtail the recovery in global fuel demand.
Futures recouped earlier losses as the dollar faltered against the euro and restored the appeal of crude for hedging inflation. Finance chiefs from the Group of 20 failed to agree at June 4-5 meeting in Busan, South Korea, on steps to ensure the recovery will strengthen, and said the global rebound faces “significant challenges.”
“Weak stock markets and the stronger dollar are mostly to blame for oil’s drop below recent support levels,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “We could easily rebound back up to $75 but risks to economic growth from belt-tightening in Europe will make it hard to break above that.”
Crude oil for July delivery traded for $71.42 a barrel, 9 cents lower, in electronic trading on the New York Mercantile Exchange, having earlier dropped 2.8 percent to $69.51. Brent crude for July settlement was at $72.35 a barrel, up 26 cents, after falling as low as $70.50 on the London-based ICE Futures Europe exchange.
The euro fell to $1.1876, the lowest level since March 2006, on concern Europe’s debt crisis will slow global growth. The MSCI Asia Pacific Index retreated 3.5 percent, its biggest decline since March 30, 2009, and the Stoxx Europe 600 Index fell as much as 1.7 percent.
‘Higher-Price Environment’
Crude oil prices will return to a higher-price environment, trading between $85 and $95 a barrel by the end of this year, David Greely, chief commodities strategist at Goldman Sachs Group Inc., said at a conference in Kuala Lumpur today. Oil may reach $100 by 2014 on future supply constraints, he said.
New York prices have fallen 5.2 percent since closing at $74.61 a barrel on June 3. Oil fell 4.2 percent on June 4 after the U.S. Labor Department said that payrolls rose by 431,000 in May, short of the median forecast of 536,000 in a Bloomberg News survey.
“The U.S. payroll data was on the weak side of expectations and put a question mark next to the rate of U.S. economic recovery,” David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney, said by telephone today. “Concerns about Europe haven’t gone away. There are stories starting to emerge about Hungary’s fiscal position and that is affecting market sentiment.”
Hungary Debt
Hungary roiled global markets last week as officials in Prime Minister Viktor Orban’s week-old government compared the country’s financial situation to that of Greece and said the previous administration lied about public finances.
Hedge-fund managers and other large speculators decreased their net-long position in New York crude-oil futures in the week ended June 1, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 24,875 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 15,568 contracts, or 38 percent, from a week earlier.
BP Plc said it is capturing more of the oil spewing into the Gulf of Mexico from its damaged well as U.S. officials said they expect the battle against pollution from the disaster to continue for months.
Offshore Drilling Moratorium
President Barack Obama declared a six-month moratorium on offshore drilling on May 27 to give a presidential panel time to investigate the explosion and sinking of the Deepwater Horizon drilling rig, which killed 11 workers and unleashed as many as 19,000 barrels of oil a day from a BP well.
“This is particularly relevant to oil markets,” Commonwealth Bank’s Moore said. “It’s not necessarily affecting short term markets but it’s going to slow future supply from deepwater and ultra-deepwater sources because regulations are likely to be tighter and costs are going to be higher.”
Iraqi Oil Minister Hussain al-Shahristani said current prices are high enough to encourage investment in new supplies and that the Organization of Petroleum Exporting Countries isn’t planning to hold an emergency meeting before its next scheduled gathering on Oct. 14. OPEC will release its monthly report on supply and demand on June 9, and the Paris-based International Energy Agency publishes its outlook the following day.
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net
