BLBG:Oil Declines Below $80 For A Third Day On Euro-Zone Debt
Oil fell below $80 a barrel for a third day in New York on concern that a meeting of European Union leaders this week will fail to check the region’s debt crisis, leading to a reduction in fuel demand.
Futures dropped 0.7 percent as George Soros warned that a failure by EU leaders to produce drastic measures may spell the demise of the bloc’s shared currency. Crude climbed earlier as oil and gas installations in the Gulf of Mexico were shut because of Tropical Storm Debby. Prices slid as the storm moved toward Florida and away from energy fields.
“The market is hanging on every development out of the euro zone,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “Things don’t look promising for the summit. Nothing appears to be in the cards that will end the crisis and an ultimate breakdown looks likely.”
Oil for August delivery declined 55 cents to settle at $79.21 a barrel on the New York Mercantile Exchange. Futures are down 20 percent this year. Prices have fallen 23 percent since the end of March, heading for the biggest quarterly decline since the final three months of 2008.
Brent oil for August settlement rose 3 cents to end the session at $91.01 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate, the crude grade traded in New York, was at $11.80, up from $11.22 on June 22.
Gasoline Rally
The drop in oil prices eased as gasoline futures surged on speculation that refinery closures in North America and Europe may make summer-blend gasoline inventories tight along the U.S. East Coast. Gasoline for July delivery gained 7.59 cents, or 3 percent, to $2.6458 a gallon in New York, the biggest gain since Dec. 20.
Policy makers should create a European fiscal authority to purchase sovereign debt in return for Italy and Spain implementing achievable budget cuts, Soros said in an interview in London yesterday. The billionaire investor said German Chancellor Angela Merkel is worsening Europe’s crisis because countries need growth, not the austerity she has called for.
Merkel, speaking to a conference in Berlin today, dismissed “euro bonds, euro bills and European deposit insurance with joint liability and much more” as “economically wrong and counterproductive,” saying that they violate the German constitution.
The EU begins a two-day meeting June 28 in Brussels. Leaders will attend pre-summit gatherings as they work to narrow differences on solutions to the debt crisis.
European Outlook
“We’re focused on Europe’s economic outlook,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The movement in oil matches what’s happening with the equity market and the euro is soft. This is all consistent with a broad risk-off trade.”
The euro touched $1.2471, the lowest level against the dollar since June 12. A weaker euro and stronger dollar curb commodities’ appeal as an alternate investment. The Standard & Poor’s 500 Index (SPX) declined 1.4 percent and the Dow Jones Industrial Average decreased 1 percent at 3:27 p.m.
“The main driver of this market remains concern about the European crisis and what that may mean for oil demand,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The tropical storm gave us a boost earlier but is now moving in the wrong direction.”
Tropical Storm
Oil gave up earlier gains after Tropical Storm Debby shifted away from offshore energy installations. Debby was in the Gulf of Mexico, about 50 miles (80 kilometers) south of Apalachicola, Florida, with top winds of 45 miles per hour, the National Hurricane Center said in an advisory at 2 p.m. New York time.
Futures climbed 2 percent on June 22 as the developing storm prompted the evacuation of platforms in the region and as equities gained.
In Europe, Norwegian offshore workers shut two production platforms after talks on pensions and wages failed, curtailing output in Europe’s second-largest oil and gas producing country after Russia. The strike will cut oil and gas output at Statoil ASA (STL)’s Oseberg and Heidrun fields, and close BP’s Skarv development, the Norwegian Oil Industry Association said yesterday.
The walkout by oil-platform workers, which is the first industrywide action since 2004, targets about 165,000 barrels of oil equivalent a day, according to the Industry Energy and Lederne unions.
Hedge Funds
Hedge funds reduced bullish oil bets to a 19-month low in the seven days ended June 19, according to the Commodity Futures Trading Commission’s Commitments of Traders report on June 22. Money managers, including funds, commodity pools and commodity trading advisers, cut wagers for a seventh week, paring futures and options combined by 5.9 percent to 122,815, the lowest level since Oct. 1, 2010.
Electronic trading volume on the Nymex was 395,346 contracts as of 3:27 p.m. in New York. Volume totaled 512,831 contracts June 22, 8.1 percent below the three-month average. Open interest was 1.42 million.
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
