Oil Drops After Europe Struggles With Bailout, OPEC Cuts Demand Forecast

By Ben Sharples - Oct 12, 2011 9:49 AM GMT+0700

Oil fell for the first day in six, snapping the longest run of gains this year, after U.S. and European lawmakers rejected economic-relief plans and OPEC lowered its crude-demand forecast.

Futures slipped as much as 1.5 percent in New York after Slovak lawmakers voted against an overhaul of Europe’s bailout fund. In the U.S., the Senate blocked President Barack Obama’s $447 billion plan to create jobs. The Organization of Petroleum Exporting Countries cut its global oil demand growth estimate for this year and 2012, citing a weak economic outlook in industrialized nations. A report tomorrow may show U.S. crude stockpiles increased, according to a Bloomberg News survey.

“The market is starting to come to grips with the depth of the issues in Europe,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney. Investors are “questioning the ongoing demand for crude oil,” he said.

Crude for November delivery dropped as much as $1.29 to $84.52 a barrel in electronic trading on the New York Mercantile Exchange and was at $85.06 at 1:35 p.m. Sydney time. The contract climbed 0.5 percent yesterday to $85.81, the highest close since Sept. 21. Prices are down 7.2 percent this year.

Brent oil for November settlement slid 0.3 percent to $110.36 on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $25.28 to New York crude, compared with a record of $26.87 on Sept. 6.

U.S. Stockpiles

U.S. crude-oil stockpiles probably rose by 800,000 barrels last week, according to the median of 15 analyst estimates in a Bloomberg News survey before the weekly Energy Department report. The department is releasing the data a day later than usual because of this week’s Columbus Day holiday.

Gasoline supplies probably remained unchanged at 213.7 million barrels last week, the survey said. Inventories of distillate fuel, a category that includes heating oil and diesel, may drop by 500,000 barrels.

Opponents of Obama’s jobs plan had enough votes to block the measure in the Senate, with at least one Democrat joining Republicans to derail his proposal. The plan includes cuts in payroll taxes for workers and employers and provides new funding for roads, bridges and other infrastructure.

In the 17-nation region using the euro, Slovakia is the only country that hasn’t ratified the enhancement of the European Financial Stability Facility. Lawmakers need to vote again “as soon as possible,” according to Prime Minister Iveta Radicova.

OPEC Forecast

OPEC, responsible for about 40 percent of world crude supply, reduced its demand estimate for a third month on risks in the world economy. It predicts oil demand will grow 880,000 barrels a day this year, down from an estimate of 1.06 million in a report last month. Consumption in 2012 may rise 1.19 million barrels a day to 89 million, versus a previous daily estimate of 1.27 million.

Oil output from OPEC will remain constant even as Libya resumes exports, the group’s secretary general Abdalla El-Badri said yesterday in London. Iran called for Arab members to cut supply, according to its news agency.

Fighting in Libya reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day in August, according to Bloomberg estimates. The North African nation pumped 100,000 barrels a day last month.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net