Crude Oil Declines as Italian Bond Yields Climb, Adding to Europe Concern - Bloomberg

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Crude Oil Declines as Italian Bond Yields Climb, Adding to Europe Concern
By Mark Shenk - Nov 14, 2011

Oil declined as Italys borrowing costs rose at an auction today, deepening concern Europe will struggle to contain the 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 most since June 1997. Crude earlier climbed to $99.69 a barrel, the highest level since July 26, after Mario Montiwas offered the post of Italian prime minister yesterday. Theres a growing realization that reform in Italy wont 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 $1.14, or 1.2 percent, to $97.85 a barrel at 1:01 p.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 $2.51, or 2.2 percent, to $111.65 a barrel on the London-based ICE Futures Europe exchange. The difference between Nymex crude and Brent narrowed for a fifth day to $13.80 today. The spread is down from a record high of $27.88 on Oct. 14. U.S. stocks and the euro dropped as Italian borrowing costs increased. The Standard & Poors 500 Index fell 1.1 percent to 1,250.62, and the Dow Jones Industrial Average (INDU)decreased 0.7 percent to 12,064.07. The euro dropped as much as 1.2 percent to $1.3592. 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. Europes inability to contain a regional debt crisis that started in Greecemore than two years ago led

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Crude Oil Declines as Italian Bond Yields Climb, Adding to Europe Concern - Bloomberg

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to a surge in Italian bond yields. Monti will try to reassure investors that Italy can cut a 1.9 trillioneuro ($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 partys annual congress in Leipzig, Merkel said leaders must create a new Europe by deepening ties in the 27-nation EU. At the same time, she repeated her rejection of jointly sold euro bonds.

Euro Exit Option

CDU delegates voted today to offer euro states a voluntary means of leaving the currency area, for the first time raising the prospect of a move not envisaged under euro rules. The congressional committee charged with devising a plan to cut the U.S. debt may use a two-step process, agreeing only on a broad framework for deficit reduction by its Nov. 23 deadline, the top Republican on the panel, Representative Jeb Hensarlingof Texas, said. Theres a lot of uncertainty out there, said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. Weve yet to see a resolution of the European debt crisis and whether the congressional committee will meet its deadline next week.

Gasoline Tumbles
Oil also dropped as gasoline fell for a fifth day on weak demand. U.S. gasoline consumption dropped 3.6 percent in the week ended Nov. 4 from a year earlier, the 10th week where demand has lagged behind year-ago levels, MasterCard Inc. (MA)said Nov. 8. Drivers used 8.67 million barrels a day, down from 8.99 million a year earlier, MasterCard Inc.s SpendingPulse report showed. Gasoline continues to lag the rest of the energy complex because of lackluster demand, said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. It is also falling because of the weakness of the WTI-Brent spread, which has shrunk from $25 to $15. Gasoline is priced off of Brent. Gasoline dropped 7.16 cents, or 2.7 percent, to $2.5322 a gallon in New York. The contract touched $2.494, the lowest level since Oct. 4. Crude at $100 to $110 a barrel is fair for producers and consumers alike, Algerian Oil Minister Youcef

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Crude Oil Declines as Italian Bond Yields Climb, Adding to Europe Concern - Bloomberg

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Yousfi told reporters today in Doha, Qatar. The Organization of Petroleum Exporting Countries will meet in Vienna on Dec. 14 to decide whether to cut output as Libyan production recovers. Libya will pump as much as 800,000 barrels a day by the end of the 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 the insurrection that toppled Muammar Qaddafi. Oil volume in electronic trading on the Nymex was 476,450 contracts as of 12:59 p.m. in New York. Volume totaled 613,848 contracts Nov. 11, 8.1 percent less than the three-month average. Open interest was 1.41 million contracts, the most since Oct. 18. 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
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