Oil fell for a second day as signs of a worsening economic outlook in the U.S. stoked speculation fuel demand may falter. Crude has lost almost $2 a barrel since Standard & Poor’s cut the U.S. long-term credit outlook yesterday, dipping below $120 in London today on concern the economic recovery may falter. OPEC Secretary General Abdalla el-Badri said there is “no shortage of oil anywhere in the world,” and Iran’s OPEC Governor Mohammad Ali Khatibi said in Tehran the group is unlikely to change production targets when it meets in June. “The last couple of months we’ve focused on supply; now the market is focusing again on demand,” said Thina Saltvedt, an analyst at Nordea Bank AB in Oslo. “It looks like the price is starting to hurt the economy. Prices of $120 and above are going to weigh on the market.” Brent crude oil for June settlement fell as much as $1.96, or 1.6 percent, to $119.65 and traded at $120.10 a barrel at 12:32 p.m. on the ICE Futures Europe exchange in London. Yesterday, the contract slipped $1.84, or 1.5 percent, to $121.61, the lowest since April 12. Crude oil for May delivery on the New York Mercantile Exchange slid was down 82 cents, or 0.8 percent, at $106.30 a barrel. Yesterday, it declined $2.54 to settle at $107.12, the lowest since April 13. The contract expires today. The more- actively traded June future fell 76 cents to $106.88. U.S. Debt Rating Standard & Poor’s put the U.S. government on notice that it risks losing its AAA credit rating unless policy makers agree on a plan to cut budget deficits and the national debt. Concern that Europe’s debt crisis is worsening sent Greek and Portuguese bond yields surging. Oil declined yesterday after China increased banks’ reserve requirements to cool inflation, signaling fuel demand growth may slow, and Saudi Arabian Oil Minister Ali al-Naimi said the market is “oversupplied.” The kingdom is the biggest supplier in the Organization of Petroleum Exporting Countries. An Energy Department report tomorrow may show U.S. crude inventories increased 1.4 million barrels last week from 359.3 million, climbing for a seventh week, according to analysts surveyed by Bloomberg News. Oil traders have turned $80 crude into the second-biggest bet in the options market as a surge in futures to the highest level since 2008 spurred concern demand may tumble. Open Interest Doubles Open interest, the number of contracts held by traders, more than doubled since January for $80 put options for December 2011 and 2012 as New York futures last week touched a 30-month high of $113.46 a barrel. The two puts, bets that prices will fall, account for 21 percent of the open interest among the top 10 contracts traded on the New York Mercantile Exchange. Options contracts that give investors the right to sell December 2012 futures at $80 a barrel rose 21 cents to $4.76 a barrel in electronic trading yesterday on the Nymex. December 2011 $80 puts gained 15 cents to $1.34. Prices surged last week as fighting in Libya threatened to prolong supply cuts from Africa’s third largest producer. The United Nations has reached an agreement with Muammar Qaddafi’s regime that permits aid workers and supplies into Misrata, the Libyan city pounded by government forces in a push to reach the port providing the rebels’ supply line for food and weapons. The unrest is the bloodiest in a wave of uprisings that has toppled leaders in Egypt and Tunisia and spread to Algeria, Bahrain, Iran, Oman, Syria and Yemen. Libya’s crude production, which averaged 1.6 million barrels a day last year, shrank to 390,000 barrels a day in March, according to a Bloomberg News survey of producers, analysts and companies. “The continuing conflict in Libya and the prospect of that spreading is still something to watch,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. In Nigeria, the incumbent leader, Goodluck Jonathan, won a presidential election as violent protests against the result killed at least six, underscoring the political risk in Africa’s biggest oil producer. 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

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