BLBG: Oil Declines a Third Day as Greek Referendum Plan Raises Risk of Default
Oil fell for a third day after Greek Prime Minister George Papandreou’s pledge to hold a referendum raised the prospect of the failure of Europe’s bailout plan.
Futures dropped as much as 4.3 percent after Greece’s decision to call a vote on its five-day-old bailout sent equities and the euro lower. Crude climbed 6.8 percent last week, the biggest gain since February, on the European package. China’s Purchasing Managers’ Index fell for the first time in three months in October, a report showed.
“The Greek debacle continues to be the main focus,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. “You are seeing risk reduction across the board because of concerns about what will happen in Europe.”
Crude oil for December delivery declined $2.57, or 2.8 percent, to $90.62 a barrel at 11:15 a.m. on the New York Mercantile Exchange. Futures climbed 18 percent in October, the biggest gain since May 2009.
Brent oil for December settlement dropped $2.25, or 2.1 percent, to $107.31 a barrel on the London-based ICE Futures Europe exchange.
Papandreou’s referendum risks pushing Greece into default if the plan is rejected by voters. An opinion poll published Oct. 29 showed most Greeks believe the accord on a new bailout package and a debt writedown is negative.
Fitch Warning
A rejection of the EU-IMF aid plan “would increase the risk of a forced and disorderly sovereign default” and raises the chance of Greece leaving the euro, Fitch Ratings said in a statement today.
The euro dropped as much as 1.8 percent to $1.3609, the lowest level since Oct. 12. A weaker euro and stronger dollar reduce the appeal of raw materials as an investment.
“The Greek action and the market reaction underscore the instability of the euro,” said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. “The market got overenthusiastic over the agreement last week. The party’s over and now we have to deal with the hangover.”
Greece’s announcement came “out of the blue, it’s surprising, very risky,” Norbert Barthle, the ranking member of German Chancellor Angela Merkel’s Christian Democratic Union party on parliament’s budget committee, said in a telephone interview.
The Standard & Poor’s 500 Index fell 2 percent to 1,228.73, and the Dow Jones Industrial Average (INDU) dropped 1.7 percent to 11,751.31.
MF Global
U.S. regulators are investigating whether hundreds of millions of dollars are missing from client accounts at MF Global Holdings Ltd., according to two people with knowledge of the matter. The firm, which filed for bankruptcy protection yesterday, was ordered by the enforcement division of the Commodity Futures Trading Commission to preserve records for the review, one of the people said.
“People are scared right now and acting accordingly,” Schork said. “The bankruptcy of MF Global and troubles in Europe bring to mind 2008.”
The bankruptcy of Lehman Brothers Holdings Inc. in September 2008 and the near-collapse of Bear Stearns Cos. earlier that year helped usher in the global recession.
China’s Purchasing Managers’ Index fell to 50.4 from 51.2 in September, the China Federation of Logistics and Purchasing said today. That compared with the median estimate of 51.8 in a Bloomberg News survey of 16 economists. The nation is the world’s second-biggest oil user, after the U.S.
‘Gloomy Picture’
“Greece’s surprise referendum move is shaking some confidence again and China’s factory activity is painting a gloomy picture for demand,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The market was kind of building some optimism into the prices over the last few weeks and some of that confidence is starting to wane.”
Oil output in the Organization of Petroleum Exporting Countries rose in October to the highest level in almost three years as gains in Libya and Angola outpaced a Saudi cut, a Bloomberg News survey showed yesterday. Production increased 0.4 percent to average 30.1 million barrels a day, the most since November 2008, according to the survey.
Iraq’s daily oil production capacity will increase by 100,000 barrels to a total of 3 million barrels in the “next few days”, Oil Minister Abdul Kareem Al-Luabi said. The nation produced oil at an average rate of 2.9 million barrels a day in October, he said in an interview in Baghdad today. The country is the only OPEC member without a production quota.
An Energy Department report tomorrow will probably show that U.S. crude oil supplies rose 500,000 barrels, or 0.1 percent, to 338.1 million last week, according to the median of 11 analyst responses in a Bloomberg News survey.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net Moming Zhou in New York at Mzhou29@bloomberg.net;
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net
