BS: Crude Drops Fifth Time in Six Days on European Debt Concern
Oil dropped for the fifth time in six days on discord over Europe’s debt crisis and weaker-than- expected German business sentiment.
Prices fell as much as 1.8 percent after German Chancellor Angela Merkel and French President Francois Hollande disagreed on a timetable to introduce joint oversight of Europe’s banks at a meeting on Sept. 22. German business confidence unexpectedly fell to the lowest level in more than two years, helping push the euro down against the dollar.
“The news out of Europe is not good and the dollar is stronger, and the combination is putting pressure on oil demand expectations,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s making people think that even $90 for oil is a little too high.”
Oil for November delivery declined $1.05, or 1.1 percent, to $91.84 a barrel at 11:05 a.m. on the New York Mercantile Exchange. Prices are down 7.1 percent this year.
Brent oil for November settlement decreased $1.57, or 1.4 percent, to $109.85 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate narrowed for the first time in three days.
In speeches marking Franco-German reconciliation after World War II, German Chancellor Angela Merkel rejected French President Francois Hollande’s appeal to activate oversight of the banking union “the earlier, the better.” Deadlock over regulation may delay a key building block in resolving the single currency’s debt crisis.
German Doubts
German Finance Minister Wolfgang Schaeuble led criticism of the euro region’s rush toward common bank oversight at a meeting of European Union finance ministers in Cyprus this month. Germany has raised doubts about plans backed by France, Spain and Italy to hand the European Central Bank oversight powers over all banks in the euro area, and to do so by Jan. 1.
“Nothing has really changed in Europe,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “There is still the fundamental problem of how to solve the crisis.”
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped for a fifth straight month to 101.4 this month from 102.3 in August. That’s the lowest reading since February 2010. Economists predicted an increase to 102.5, according to a Bloomberg survey.
The euro fell as much as 0.7 percent to $1.2891. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.
U.S. Equities
Prices also declined as U.S. stocks moved lower. The Standard & Poor’s 500 Index (SPX) dropped as much as 0.6 percent.
“This is further liquidation of assets,” said Bill Baruch, senior market strategist at Iitrader.com in Chicago. “We are heading into the weaker demand season and momentum is kind of on the downside.”
Demand for gasoline slid for a second week in the seven days ended Sept. 14, down 0.7 percent to 8.63 million barrels a day, the weakest level since July 13, the Energy Department reported last week.
Oil also fell as a survey modeled on the U.S. Federal Reserve’s Beige Book showed China’s manufacturers and retailers are less optimistic about sales than they were three months ago,
The China Beige Book, through interviews of more than 2,000 company executives and bankers from Aug. 9 to Sept. 3, found limits to monetary easing after interest-rate cuts in June and July, according to a summary from CBB International LLC, the New York-based researcher that conducted the survey.
The country is the world’s second-largest oil consumer after the U.S.
Oil rose above $100 this month for the first time since May amid speculation European steps to tame the crisis and monetary easing by central banks would boost the global economy. The European Central Bank said Sept. 6 it would purchase bonds while the U.S. Federal Reserve said Sept. 14 it would start buying mortgage securities.
To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net
