BLBG: Crude Oil Falls as Europe Debt Concerns Outweigh Supply Decline Forecast
Oil declined in New York as concern that Europe’s debt crisis will hurt economic growth outweighed forecasts that U.S. crude stockpiles dropped last week.
U.S. crude inventories declined 2 million barrels, or 0.6 percent, in the seven days ended Nov. 19 from 357.6 million a week earlier, according to the median of 11 analyst estimates before an Energy Department report tomorrow. Yields on Spanish and Portuguese debt rose, indicating that Ireland’s plan to seek a rescue risks escalating the crisis to the southern Europe nations with large budget deficits.
“With crude stocks still plentiful, it will take a sharp move in equities or the dollar to break oil out of its tight range,” said Andrey Kryuchenkov, an analyst with VTB Capital in London.
Crude for January delivery fell as much as $1.22, or 1.5 percent, to $80.52 a barrel in electronic trading on the New York Mercantile Exchange. It was at $80.67 at 12:53 p.m. London time. Brent crude for January settlement dropped as much as $1.19, or 1.4 percent, to $82.77 a barrel on the London-based ICE Futures Europe exchange.
Oil recouped some losses as South Korea scrambled fighter jets and returned fire after nuclear-armed North Korea lobbed dozens of shells into its territory, injuring 14 soldiers, according to the government and YTN reports.
A South Korean Defense Ministry official, who declined to be identified, confirmed the shelling. The military has been put on high alert and will “respond strongly” to further provocation, he said.
‘Credit Negative’
Ireland became the second euro country to seek a rescue as the cost of saving its banks threatened a repeat of the Greek debt crisis that destabilized the currency. Moody’s Investors Service said yesterday that a bailout by the European Union and the International Monetary Fund may raise the debt burden and pose a “credit negative” for the country.
“Besides Ireland, people are worried about Spain and Portugal so oil futures are following the focus on the euro zone,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. “Any financial trouble would slow down the economic recovery and could impact fuel demand.”
The extra yield demanded to hold Portuguese 10-year debt rather than German bunds rose 3 basis points yesterday to 407 basis points. The Spanish spread with Germany rose 8 basis points today to 215, before the sale of up to 4 billion euros ($5.4 billion) in treasury bills.
The dollar rose against all of its major counterparts except the franc as the Korean crossfire fueled demand for safer assets. It climbed to $1.3580 per euro from $1.3627 in New York yesterday.
The Energy Department is scheduled to release its weekly report on oil inventories at 10:30 a.m. tomorrow in Washington. The industry-funded American Petroleum Institute is due to publish its data later 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 on sev@bloomberg.net
