By Ann Koh June 7 (Bloomberg) -- Crude oil dropped for a second day on concern the government debt crisis in Europe will widen, slowing a global recovery in fuel demand. Prices were poised for their biggest two-day decline in a month as the euro dropped against the dollar and the MSCI Asia Pacific Index tumbled by the most in 14 months amid concern of losses in Hungary. Iraqi Oil Minister Hussain al-Shahristani said current prices are high enough to encourage investment in marginal fields 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 may slightly revise down their global demand forecast just because the austerity packages in Europe are more severe than they were last month,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in a Bloomberg Television interview in Melbourne. “We expect the volatility to be around for a while as the euro concerns continue to pervade markets. On the ground in the U.S., the demand and supply story is still pretty weak.” Crude oil for July delivery fell as much as $2, or 2.8 percent, to $69.51 a barrel in electronic trading on the New York Mercantile Exchange, and was at $70.02 a barrel at 2:05 p.m. Singapore time. The contract has fallen 6.1 percent since closing at $74.61 a barrel on June 3, the biggest two-day decline since May 6. The euro fell to $1.1922 from $1.1967 in New York and touched $1.1877, the lowest level since March 2006, on concern Europe’s debt crisis will slow global growth. The MSCI Asia Pacific Index retreated 3.3 percent to 109.70 as of 1:20 p.m. in Tokyo, set for its biggest decline since March 30, 2009. The gauge has slumped 15 percent from its high this year on April 15. Hungary Reversal Hungary’s government reversed course over the weekend, saying there was no danger of default after it spent two days telling the world the nation was at risk of a Greece-like crisis. Oil fell 4.2 percent on June 4 after the Labor Department said that payrolls rose by 431,000 in May. Economists projected a 536,000 gain, according to the median forecast in a Bloomberg News survey. The U.S. government hired 411,000 temporary workers for the 2010 census, accounting for the bulk of the gain in employment. Private payrolls rose a less-than-forecast 41,000. The growth in jobs in the private sector followed an increase of 218,000 in April that was revised from 231,000. Brent crude for July settlement declined as much as $1.59, or 2.2 percent, to $70.50 a barrel, on the London-based ICE Futures Europe exchange and was at $71.16 a barrel at 2:08 p.m. Singapore time. The contract fell $3.32, or 4.4 percent, to $72.09 on June 4. Payrolls ‘Question Mark’ “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.” 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. Iraq Output Iraq will pump at least 4 million barrels of oil a day before it begins talks to re-join OPEC’s production limit, Al- Shahristani said at the Asia Oil & Gas Conference in Kuala Lumpur today. Crude production in the country is “far below” potential as the Middle East nation suffers from under-investment in the industry, Al-Shahristani said. The country will receive $150 billion in investments from fields the nation awarded in two bidding rounds last year. The holder of the world’s third-largest oil reserves is considering adding four refineries with a total capacity of 750,000 barrels a day “within a couple of years” to produce products for export, he said. 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. President Barack Obama declared on May 27 a six-month moratorium on offshore drilling 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 I think 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.” To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net.

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