Oil Tumbles Below $70 as European Debt Crisis Threatens Economic Expansion

Crude oil tumbled to a five-month low in New York on concern Europe’s sovereign-debt crisis may derail the global economic recovery and reduce fuel consumption.

Oil fell 2.2 percent as European countries implemented measures to curb fiscal deficits. Leaders agreed last week to a $1 trillion financial lifeline after Greece’s fiscal crisis spread to Spain and Portugal. The euro weakened to the lowest level against the dollar since April 2006, curbing the investment appeal of commodities.

“The tide has turned against the bulls,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “The weakness of the euro and worries about the contagion risk from Greece are the primary factors moving oil.”

Crude oil for June delivery fell $1.55 to $70.06 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 14. Prices are down 12 percent this year, and up 24 percent from a year ago.

Gasoline for June delivery declined 8.77 cents, or 4.1 percent, to $2.0431 a gallon in New York. It was the lowest settlement price since Feb. 25.

Pump prices declined along with futures. Regular gasoline, averaged nationwide, slipped 0.5 cent to $2.867 a gallon, AAA, the nation’s biggest motoring organization, said today on its website. It was the 11th straight decrease and the lowest level since April 26.

Euro Slumps

The euro fell as low as $1.2235 versus the dollar earlier today, the weakest price since April 2006. The European currency traded at $1.2388 at 3:07 p.m. in New York, up 0.2 percent from $1.2358 on May 14.

“It all comes down to demand growth,” said Michael Fitzpatrick, vice president of energy at MF Global in New York. “You aren’t going to be seeing either job or demand growth in Europe if they implement these austerity measures.”

European finance ministers meeting in Brussels today are under pressure to show they can reduce deficits fast enough to satisfy investors and then police budgets effectively once targets are met.

“All of the worries about the European sovereign debt crisis sent the euro to the lowest level against the dollar in four years,” said Tom Bentz, a broker at BNP Paribas Commodity Futures Inc. in New York. “There’s been a flood of capital into the dollar.”

U.S. Assets

Global demand for long-term U.S. financial assets rose in March to a record, according to a Treasury Department report. Net buying of equities, notes and bonds totaled $140.5 billion, more than double economists’ projections, after net buying of $47.1 billion in February, the report released today in Washington showed.

Manufacturing in the New York region expanded at a slower pace in May than forecast as sales cooled, the Federal Reserve Bank of New York’s general economic index showed today.

“The supply and demand situation points to lower prices,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We’ve got an excess of supply and an uptrend in inventories, which makes this market look heavy.”

U.S. crude oil stockpiles increased in 14 of the past 15 weeks as refiners cut processing rates, an Energy Department report on May 12 showed. Supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is delivered, rose to a record of 37 million barrels.

Reconnection

Oil futures traded in New York will “reconnect with the broader market within weeks” as the inventory surplus at Cushing reverses, according to analysts at Goldman Sachs Group Inc. WTI, which is normally more expensive than North Sea Brent, has been cheaper than the U.K. benchmark since early April.

“The weakness in WTI is the result of idiosyncratic issues in Cushing,” Goldman analysts led by Jeffrey Currie in London said in a report today. “As we expect refinery runs to continue to increase, we remain confident that the situation in Cushing should reverse over the coming weeks.”

Brent crude oil for July delivery slipped $2.83, or 3.6 percent, to end the session at $75.10 a barrel on the London- based ICE Futures Europe exchange. It was the lowest settlement price since Feb. 15.

Iran’s agreement to swap nuclear fuel with Turkey leaves “serious concerns” about Iranian intentions and doesn’t fully address international demands, an Obama administration spokesman said. The Persian Gulf nation has the world’s second-biggest proved oil reserves.

The full details of the plan must be laid out “clearly and authoritatively” to the United Nations’ nuclear agency before it can be considered by the international community, White House press secretary Robert Gibbs said in a statement.

Oil volume on the Nymex was 788,737 contracts as of 2:31 p.m. in electronic trading New York. Volume totaled 899,276 contracts on May 14, 24 percent greater than the average of the past three months. Open interest was 1.47 million contracts.

The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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