Oil Tumbles Below $95 a Barrel on U.S. Economy and European Debt Concern

Crude oil tumbled below $95 a barrel for the first time since February on concern that Europe’s debt crisis will deepen and on signals the U.S. economy is slowing, reducing fuel consumption.

Futures dropped 4.6 percent as European finance ministers struggled to break a deadlock on a second rescue plan for Greece, sending the euro and most commodities lower. The Federal Reserve Bank of New York’s general economic index slipped to the lowest level since November. An Energy Department report today showed U.S. fuel demand fell for the first time in five weeks.

“The Greek crisis is making people worry about further bank failures in Europe and cascading defaults hitting the economy and fuel demand,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The demand numbers in today’s report were terrible, especially for industrial fuels.”

Crude oil for July delivery fell $4.56 to $94.81 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 22. It was the biggest decline since May 11. Prices are up 23 percent from a year ago.

Brent crude oil for July delivery dropped $3.06, or 2.5 percent, to end the session at $117.10 a barrel on the London- based ICE Futures Europe exchange. The contract expired today. The more actively traded August futures fell $6.34, or 5.3 percent, to $113.01.

Oil in New York had traded between $95.02 and $104.60 from May 9 through yesterday. Futures climbed to $99.95 at 10:53 a.m. before dropping.

‘Big Support Level’

“We failed to break $100, another psychological resistance number, and a lot of momentum selling came in,” said Joe Posillico, senior vice president of energy derivatives at MF Global Inc. in New York. “And $95 was a big support level.”

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet on June 17 in Berlin to try to resolve their differences on a rescue for Greece, which was downgraded this week to the country with the lowest credit rating by Standard & Poor’s. EU finance ministers will meet on June 19.

Greek Prime Minister George Papandreou said he will make changes to his cabinet tomorrow and will then immediately seek a vote of confidence in Parliament.

The euro was down 1.9 percent at $1.4171 after dropping to $1.4156, the lowest level since May 27. A stronger U.S. dollar reduces the appeal of raw materials to investors.

Panic Mode

“People are in full panic mode,” said Stephen Schork, president of Schork Group Inc., a Villanova, Pennsylvania-based consultant. “If we don’t hold here, hold your breath as the market heads for $90. This is make-it or break-it time for the bulls.”

The Federal Reserve Bank of New York’s manufacturing index declined to minus 7.8 from 11.9 in May. Economists surveyed by Bloomberg News projected 12. The so-called Empire State Index covers New York, northern New Jersey and southern Connecticut.

Nationwide industrial production rose less than forecast in May, restrained by a slump in utility output and shortages of auto parts from Japan. Output at factories, mines and utilities rose 0.1 percent, Federal Reserve figures showed. Economists projected a 0.2 percent gain, according to the median estimate in a Bloomberg News survey.

“The oil market continues to follow economic indicators because they provide signals on demand,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “Trading continues to get hit by occasional periods of panic due to the sovereign debt crisis in Europe.”

Equities Decline

The Standard & Poor’s 500 Index dropped 1.7 percent to 1,266.16, and the Dow Jones Industrial Average fell 176.65 points to 11,899.46 at 3:30 p.m. in New York

U.S. consumption of distillate fuel, a category that includes diesel and heating oil, tumbled 5.2 percent to 3.6 million barrels a day, the lowest level since January, according to the Energy Department.

“The demand picture isn’t looking good, especially for distillate fuel,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. “The poor distillate number is a sure sign that the economy is weakening.”

U.S. crude-oil stockpiles fell 3.41 million barrels to 365.6 million last week, the department said. A 1.8 million- barrel decline was projected, according to the median of 13 analyst responses in a Bloomberg News survey.

Cushing Supplies

Stockpiles of oil at Cushing, Oklahoma, the delivery point for the New York-traded West Texas Intermediate grade, slipped 1.14 million barrels to 37.76 million in the week ended June 10, the lowest level since February. Cushing is the terminus of the Keystone pipeline, which carries Canadian oil to the central U.S. and was closed from May 29 to June 5.

“It looks like the drop in supply was a result of the Keystone issue,” Larry said.

Oil volume in electronic trading on the Nymex was 962,463 contracts as of 3:28 p.m. in New York. Volume totaled 741,412 contracts yesterday, 12 percent above the average of the past three months. Open interest was 1.58 million contracts.

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

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

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