Crude Oil Futures Decline Most in a Week in New York on European Concern

By Margot Habiby and Mark Shenk - Sep 17, 2011 2:44 AM GMT+0700

Crude oil dropped the most in a week in New York, trimming a fourth consecutive weekly gain, on concern that European leaders meeting today haven’t taken sufficient steps to contain the region’s debt crisis.

Futures fell 1.6 percent as the euro halted a two-day advance against the dollar on signs that an agreement to bail out Greece may be hindered by demand from Finland for collateral. Technical resistance at about $90 a barrel also caused prices to retreat after yesterday’s rally.

“Everyone has their eye on Europe at the moment,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. “We want to see if there is serious progress in solving the debt crisis. If there isn’t, we could see prices move a lot lower next week.”

Crude for October delivery fell $1.44 to settle at $87.96 a barrel on the New York Mercantile Exchange. Futures gained 0.8 percent this week and have fallen 3.7 percent this year.

Brent crude oil for November settlement dropped 8 cents to $112.22 a barrel on the London-based ICE Futures Europe Exchange. Brent rose 1.2 percent this week.

European finance ministers ruled out efforts to prop up the faltering economy and gave no indication of providing aid for lenders to go along with yesterday’s liquidity lifeline from the European Central Bank. Clashing with U.S. Treasury Secretary Timothy F. Geithner, finance chiefs from the euro region said the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy near stagnation.

The ECB said yesterday it would lend euro-area banks dollars to help tame the debt crisis and coordinate the action with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank.

Euro Falls

The euro fell 0.6 percent against the dollar, reducing the appeal of commodities priced in the U.S. currency, after Finland Finance Minister Jutta Urpilainen said an agreement on collateral is unlikely to be reached at today’s trans-Atlantic finance meeting in Wroclaw, Poland.

The European single currency traded at $1.3790 at 3:01 p.m. in New York, compared with $1.3877 yesterday. Earlier, it dropped as much as 0.9 percent.

The 17 euro nations accounted for about 12 percent of global oil demand in 2010, according to Bloomberg calculations based on BP Plc’s Statistical Review of World Energy.

“Persistent concerns about the euro-zone’s problems continue to dominate the markets,” said Myrto Sokou, an analyst at Sucden Financial Ltd. in London. “The current economic and political conditions look fairly tentative at the moment.”

$90 Resistance Level

Oil has tested $90 a barrel in intraday trading the past two days before settling lower. It settled at $90.21 on Sept. 13, the highest level since Aug. 3.

“The market continues to run into resistance at $90 and doesn’t seem to have enough to hold above it,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The uncertain economic picture is likely to strengthen the resistance for the market up there.”

Brent oil settled at a premium of $24.04 to West Texas Intermediate November futures, compared with a record $26.87 on Sept. 6 based on front-month closing prices. Brent may be headed for $150 a barrel, according to chart analysis by Citigroup Inc.

“Crude oil looks to be a coiled spring,” Tom Fitzpatrick, the bank’s New York-based chief technical analyst, said in a research note dated yesterday. A weekly close above $117.60 a barrel “would suggest a breakout and the possibility of a move toward at least $150.”

Price Volatility

Price fluctuations throughout the financial markets were expected to be bigger than usual today because of so-called quadruple witching, or the quarterly expiration of stock index futures, options on index futures, stock options and stock futures, McGillian said. Quadruple witching occurs once every three months.

Prices are also volatile before next week’s meeting of Federal Reserve policy makers, said Jason Schenker, the president of Prestige Economics, an energy advisory company in Austin, Texas.

“There should be a great deal of volatility going into next week as we wait for the Fed meeting,” he said. “What they say will be absolutely critical for the stock market and commodities, especially oil.”

Oil may decline next week on concern that Europe’s debt crisis will hurt global economic growth and the demand for fuel, a Bloomberg News survey showed. Eighteen of 40 analysts, or 45 percent, forecast oil will decline through Sept. 23, while 13 respondents, or 33 percent, predicted prices will increase. Nine estimated there will be little change. Last week, 50 percent of the surveyed analysts projected a drop.

Oil volume in electronic trading on the Nymex was 563,804 contracts as of 3:01 p.m. in New York. Volume totaled 669,730 contracts yesterday, 0.1 percent below the average of the past three months. Open interest was 1.45 million contracts.

To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net