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Oil Drops for Second Day on Concern European Crisis Will Deepen

10 Nov 2011

Oil fell for a second day in New York as investors speculated Europe’s debt crisis may cause the euro area to fracture and threaten the region’s economy.

Futures slid as much as 0.6 percent, after declining 1.1 percent yesterday in the biggest drop in two weeks. A senior German lawmaker said Chancellor Angela Merkel’s Christian Democratic Union may adopt a motion to allow countries to exit the euro. Crude’s relative strength index approached a level that typically indicates prices may be unsustainable. Brent’s premium to U.S. contracts was near the lowest this month.

“There’s a move to the sidelines from investment participants in the crude markets,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty Ltd. in Sydney. “We’re waiting with bated breath on Europe.”

Crude for December delivery declined as much as 54 cents to $95.20 a barrel in electronic trading on the New York Mercantile Exchange. It was at $95.27 at 3:40 p.m. Singapore time. Yesterday, the contract lost $1.06 to $95.74, ending a five-day rally. Prices are up 4.3 percent the past year.

Brent oil for December settlement on the London-based ICE Futures Europe exchange fell as much as 62 cents, or 0.6 percent, to $111.69 a barrel. The European benchmark contract was at a premium of $16.48 to New York crude, compared with $16.57 at yesterday’s close, the lowest since Oct. 31. It was a record $27.88 on Oct. 14.

Technical Resistance

Oil in New York halted its advance yesterday after the 14-day relative strength index rose above 67 on Nov. 8, according to data compiled by Bloomberg. That was the highest since April 29. A reading of 70 usually signals a rally isn’t sustainable.

Italian bond yields climbed above the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts. The euro fell to the lowest in a month before Italy auctions 5 billion euros ($6.8 billion) of debt today. Merkel’s party next week will debate a motion allowing a euro member to leave the common currency without exiting the European Union, according toNorbert Barthle, the ranking member of parliament’s budget committee. It probably has enough support to be passed by delegates, he said yesterday in Berlin.

Japan’s machinery orders decreased 8.2 percent in September from August, the Cabinet Office said in Tokyo today. The median forecast of 29 economists surveyed by Bloomberg News was for a 7.1 percent fall. The country accounted for 5 percent of global oil demand last year, according to BP Plc’s annual Statistical Review of World Energy.

Futures rose to a three-month high early yesterday after the U.S. Energy Department reported an unexpected decline in inventories held by the world’s largest crude consumer. Stockpiles fell 1.37 million barrels to 338.1 million in the week ended Nov. 4, according to the report. Supplies were forecast to increase 500,000 barrels, based on the median estimate of 13 analysts polled by Bloomberg News.