Crude Oil Falls Amid Concerns Europe's Debt Crisis Will Endanger Recovery

Crude oil declined for the first time in three days, tracking global equity markets, on renewed concern that Europe’s sovereign-debt crisis will hamper the economic recovery.

Oil dropped as a European Central Bank official said some of the region’s banks face funding problems. The Stoxx Europe 600 Index of equities in 18 European countries dropped as much as 1.4 percent. Goldman Sachs Group Inc. reduced its crude price forecasts today.

“Oil is clearly moving toward $80 a barrel but people are anxious about the euro economies,” said Hannes Loacker, a Raiffeisen Zentralbank Oesterreich analyst in Vienna. “We still see the correlation between equity markets and commodities.”

Crude for July delivery was down $1.07, or 1.4 percent, to $76.75 a barrel in electronic trading on the New York Mercantile Exchange at 1:05 p.m. London time. The July contract expires today. The more-actively traded August contract was down $1.05 cents, or 1.3 percent, at $77.56 a barrel after falling as low as $77.33 a barrel. Futures have dropped 3.3 percent this year.

Brent crude for August declined as much as $1.26, or 1.6 percent, to $77.56 a barrel on the ICE Futures Europe exchange in London, and was at $77.86 at 1:07 p.m. local time.

Bank Funding

Asian and European stocks dropped for the first time in nine days today after Christian Noyer, a governing council member of the European Central Bank, cited the funding problems facing banks and Standard & Poor’s Ratings Services said Spanish lenders face difficult years as credit losses mount.

“We’ve seen oil come off on the back of equity markets,” Nas Nijjar, a crude-oil trader at CMC Markets in London, said by phone today. “We saw a sharp fall in commodities yesterday, the market is a bit nervous.”

China’s central bank said June 19 it will increase flexibility in the yuan, marking an end to the crisis policy of pegging to the dollar. A day later, the People’s Bank of China said the shift would reduce the economy’s “overreliance on exports,” indicating an expectation for the yuan to rise.

“China’s move to more flexibility is a positive thing, but only in the medium to long-term,” said Loacker of Raiffeisen. “So after the first enthusiasm, people took profit after quite a good rise in crude prices in the past few days.”

U.S. inventories of crude oil probably dropped 1 million barrels last week, according to the median of 10 analyst estimates in a Bloomberg News survey before an Energy Department report tomorrow. The industry-funded American Petroleum Institute is scheduled to release its supply report today.

Goldman Cuts Forecast

Goldman Sachs Group Inc. cut its price forecasts for crude oil because commodity markets are “fragile” because of concerns that growth in Europe and China will slow, the bank said in a report today.

“Commodity markets are generally rebounding strongly off their lows but sentiment remains fragile on European and Chinese concerns,” said analysts led by New York-based Allison Nathan.

West Texas Intermediate oil was forecast at $87 a barrel for a three-month period, down 9.4 percent from a $96 prediction Goldman Sachs made in a May 10 report. It also downgraded estimates for six-month and 12-month crude and for Brent oil.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net Rachel Graham in London rgraham13@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.