Oil dropped for the first day in three in New York after President Barack Obama said failure to raise the U.S. debt ceiling may unravel global finances and threaten growth in the world’s biggest crude consumer.
Futures slipped as much as 1.3 percent after Obama said the U.S. “could have a worse recession than we’ve already had,” according to a segment taped for CBS’s “Face the Nation” program. Prices also slid on concern Greece’s debt crisis may worsen, threatening Europe’s economic growth. Oil may drop in the second half of the year amid signs prices are causing demand to slow, said Francisco Blanch, head of Global Commodity Research, Bank of America Merrill Lynch.
“At the moment, anything seen to adversely impact growth in the U.S. gets factored into oil prices,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicted crude in New York will average $113 a barrel in the third quarter.
Crude for June delivery slid as much as $1.30 to $98.35 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.79 at 1:06 p.m. Sydney time. The contract gained 2.5 percent last week, the biggest weekly gain since the period ending April 8. Prices are 41 percent higher the past year.
Brent oil for June settlement lost 44 cents, or 0.4 percent, to $113.39 a barrel on the London-based ICE Futures Europe exchange. The contract advanced 4.3 percent last week.
The U.S. administration will begin stimulating domestic crude production to blunt rising gasoline prices with measures including encouraging drilling in Alaska and giving oil companies more time to comply with safety regulations, Obama said in his weekly address.
Gasoline prices outpaced crude, dropping 0.6 percent in New York, as flooding from the Mississippi River threatened the second-largest U.S. oil refinery. Futures for June delivery lost 1.7 cents to $3.0572 a gallon today.
Louisiana opened four of the 25 gates at the Morganza floodway, allowing the Mississippi River to pour into the Atchafalaya River basin. Inside the threatened area are 2,264 oil or natural gas wells that each day produce 19,278 barrels of crude, about 10 percent of Louisiana’s onshore total, and 252.6 million cubic feet of gas, according to the state.
The Mississippi was threatening to reach to a flow rate of 1.62 million cubic feet per second unless water was diverted, putting in peril the levees at Baton Rouge, home to an estimated 229,000 people and industrial areas that include an Exxon Mobil Corp. refinery, the company’s second largest U.S. facility.
Alon USA Energy Inc.’s refinery in Krotz Springs is in a zone under a mandatory evacuation order, St. Landry’s Parish spokeswoman Francine Sias said. Alon spokesman Blake Lewis said the parish had granted the company an extension. A temporary levee is being constructed by employees to protect the 83,000- barrel-a-day refinery and 243 nearby homes.
Oil prices will head lower in the July-to-December period amid signs of demand destruction, Blanch said at a media briefing in Hong Kong today. Brent may trade at an average $122 a barrel in the second quarter and $94 in the fourth, he said.
The European benchmark has climbed 20 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Algeria, Bahrain, Iran, Syria, Oman and Yemen.
Brent traded at a premium of $14.59 a barrel to U.S. futures, compared with $14.18 on May 13. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21. The spread averaged 76 cents last year.
Yemen’s Joint Meetings Party, a coalition of six opposition groups, says a plan to end the country’s political crisis is dead following a visit by the chief envoy of Arab Gulf states seeking to broker a deal.
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