Oil Snaps Two-Day Gain as S&P Threatens Europe Debt Downgrades

Author: Spencer Ogden
Date posted06/Dec/2011
Author: Spencer Ogden

Oil dropped from the highest in almost three weeks in New York as investors speculated that fuel demand will falter amid signs Europe is struggling to tame its sovereign debt crisis.

West Texas Intermediate futures slid as much as 0.6 percent, snapping two days of gains, after Standard & Poor’ssaid it may strip Germany and France of AAA credit ratings as it put 15 euro nations on review for downgrades. U.S. gasoline and distillate stockpiles rose last week while crude supplies shrank, according to a Bloomberg News survey. London-traded Brent oil may average from $90 to $100 a barrel next year, BP Plc’s chief executive officer said today.

“The market is anticipating the implications to global growth from Europe,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty. in Sydney, who forecasts WTI’s discount to Brent will shrink to parity in the absence of “supply-rattling,” events.

Crude for January delivery fell as much as 61 cents to $100.38 a barrel in electronic trading on the New York Mercantile Exchange. It was at $100.66 at 3:40 p.m. Singapore time. Yesterday, the contract gained 3 cents to $100.99, the highest settlement since Nov. 16. Futures are up 10 percent this year after rising 15 percent in 2010.

Brent oil for January settlement on the London-based ICE Futures Europe exchange dropped 40 cents, or 0.4 percent, to $109.41 a barrel. The European benchmark contract was at an $8.77 premium to New York-traded West Texas grade, compared with $8.82 yesterday and a record $27.88 on Oct. 14. Brent last closed at a discount to WTI in August 2010.

Negative Outlook

Brent will trade between $90 and $100 a barrel for the next few years as Libyan crude production resumes, David Morrison, chairman of Wood Mackenzie Ltd., said in an interview in Seoultoday. BP sees prices averaging in the same range next year, Chief Executive Robert Dudley told reporters in Doha, Qatar, today.

The euro area’s six AAA-rated countries are among nations to be placed on a negative outlook and their credit ratings may be cut depending on the result of a summit of European Union leaders on Dec. 9, S&P said yesterday.

The European Union accounted for 16 percent of global oil demand last year, according to BP Plc’s annual Statistical Review of World Energy. The U.S., the world’s biggest oil user, consumed 19.1 million barrels a day, or 21 percent of the total.

U.S. Inventories

U.S. gasoline inventories probably climbed 1 million barrels in the week ended Dec. 2 and supplies of distillates, which include heating oil and diesel, increased 1.1 million barrels, based on the median estimate of nine analysts surveyed by Bloomberg News before an Energy Department report tomorrow.Crude stockpiles likely fell 1 million barrels as refineries ended seasonal maintenance and boosted run rates, the survey shows.

The industry-funded American Petroleum Institute inWashington will release its own supply data today.

Libya will pump about 1 million barrels a day of crude by the end of the year, according to Abdalla El-Badri, secretary-general of the Organization of Petroleum Exporting Countries. Libya, which has Africa’s largest proven oil reserves, will restore output to pre-conflict levels by the second half of next year, El-Badri said yesterday in Doha.

Libyan Output

Libya’s production rose to 840,000 barrels a day at the end of last month, state-run National Oil Corp. said Nov. 30. Output was about 1.6 million barrels a day in January before the revolt against the former regime of Muammar Qaddafi. OPEC’s 12 members are scheduled to meet Dec. 14 in Vienna to discuss output.

Hedge funds and other money managers raised bullish bets onBrent crude by 14,833 contracts in the week ended Nov. 29, according to data from ICE Futures Europe. Speculative bets that prices will rise, in futures and options combined, outnumbered so-called short positions by 72,356 lots, the exchange said yesterday in its weekly Commitment of Traders report.