BLBG: Crude Oil Declines as Italian Bond Yields Climb, Merkel Calls for Overhaul
Oil declined as Italy’s borrowing costs rose to a euro-era record at an auction today, deepening concern Europe will struggle to contain its debt crisis.
Futures fell as much as 1.8 percent after Italy sold 3 billion euros ($4.1 billion) of five-year notes priced to yield 6.29 percent, the biggest yield since June 1997. Crude earlier climbed to $99.69 a barrel, the highest level since July 26, after Mario Monti was offered the post of Italian prime minister yesterday.
“There’s a growing realization that reform in Italy won’t occur overnight,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The Italian economy and political system have been confounding experts for a long time.”
Crude oil for December delivery dropped $1.71, or 1.7 percent, to $97.28 a barrel at 10:20 a.m. on the New York Mercantile Exchange. Prices rose 5 percent last week and have increased for six consecutive weeks, the longest run of gains since April 2009.
Brent oil for December settlement fell $2.19, or 1.9 percent, to $111.97 a barrel on the London-based ICE Futures Europe exchange. December futures expire tomorrow. The more- active January contract was down $1.83, or 1.6 percent, to $111.10.
U.S. stocks and the euro dropped as Italian borrowing costs increased. The Standard & Poor’s 500 Index fell 0.5 percent to 1,257.04, and the Dow Jones Industrial Average (INDU) decreased 0.3 percent to 12,121.59. The euro dropped as much as 1 percent to $1.3615. A weaker euro and stronger dollar reduce the appeal of raw materials as an investment.
‘Really Beat Up’
“The euro is getting really beat up today,” said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. “The situation both in Europe and here is still uncertain. This market has rocketed higher recently, reaching levels that are hard to justify and will harm economic growth.”
Europe’s inability to contain a regional debt crisis that started in Greece more than two years ago led to a surge in Italian bond yields. Monti will try to reassure investors that Italy can cut a 1.9 trillion-euro ($2.6 trillion) debt load and spur economic growth that has lagged behind the euro-region average for more than a decade.
German Chancellor Angela Merkel called for an overhaul of the European Union, advocating closer political ties and tighter budget rules, in her most explicit prescription for ending the debt crisis.
Speaking to her Christian Democratic Union party’s annual congress in the eastern German city of Leipzig today, Merkel said leaders must create a “new Europe” by deepening ties in the 27-nation EU. At the same time, she repeated Germany’s rejection of jointly sold euro bonds.
Balanced Markets
Crude at $100 to $110 a barrel is fair for producers and consumers alike, Algerian Oil Minister Youcef Yousfi told reporters today in Doha, Qatar. Conditions in oil markets are changing rapidly, he said.
Oil markets are in balance and not oversupplied, ministers from OPEC-member nations Algeria, Iran and Nigeria said yesterday. The Organization of Petroleum Exporting Countries will meet in Vienna on Dec. 14 to decide whether to cut output as Libyan crude production recovers.
Libya, holder of Africa’s largest oil reserves, will pump as much as 800,000 barrels a day by the end of this year, the chairman of state-run National Oil Corp., Nuri Berruien, said yesterday in an interview in Doha. The country produced almost 1.6 million barrels a day in January, before protests against former leader Muammar Qaddafi began.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net
