Oil Declines in New York, Paring Biggest Monthly Increase Since May 2009

Oil fell in New York on speculation demand will falter after the biggest monthly gain in more than two years and a surge in the dollar. Brent’s premium to U.S. crude slid to a four-month low.

Futures fell as much as 1.2 percent after Japan weakened the yen for the third time this year and a technical indicator signaled prices may have risen too fast. A stronger dollar typically curbs demand for commodities from holders of other currencies. Crude prices at $100 a barrel would be unsustainable, according to the former head of the International Energy Agency. Oil is up 17 percent in October, the biggest monthly increase since May 2009.

“My anticipation is that prices will consolidate,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney. Prices at $93 to $95 a barrel are “expensive,” he said.

Crude for December delivery dropped as much as $1.07 to $92.25 a barrel in electronic trading on the New York Mercantile Exchange and was at $92.61 at 3:31 p.m. Singapore time. Prices slid 0.7 percent on Oct. 28 to $93.32.

Brent crude for December settlement was at $109.12 a barrel, down 0.7 percent, on the London-based ICE Futures Europe exchange. The contract traded at a premium of $16.56 a barrel to New York futures, which would be the lowest close since July 4. It settled at a record $27.88 on Oct. 14.

Yen Slide

The yen dropped 4.2 percent against the dollar after Japan stepped into foreign-exchange markets to weaken the currency after its gains to a postwar record threatened an export-led economic recovery. The dollar rose against all but one of its 16 major peers.

New York’s West Texas Intermediate also fell after nearing its 200-day moving average, at $94.77 a barrel today, according to data compiled by Bloomberg. A failure to breach technical resistance typically means prices will change direction.

Prices at $100 would not be sustainable given the state of the global economy, according to Nobuo Tanaka, who left his post as executive director of the Paris-based IEA in August. Tanaka spoke at a conference in Singapore today.

Oil at $80 to $100 a barrel is “reasonable” and will continue to encourage the building of additional spare production capacity, U.A.E. Energy Minister Mohamed al-Hamli said today. It is too early to discuss what the Organization of Petroleum Countries is likely to do when it meets to decide oil- production policy in December, he said.

OPEC Meeting

Iran’s Governor to OPEC, Mohammad Ali Khatibi, said supply and demand in world oil markets is balanced and there is no need for an emergency meeting of the producer group, according to the state-run Iranian Students News Agency yesterday. The Organization of Petroleum Exporting Countries plans to meet next on Dec. 14 in Vienna.

Brent’s premium to WTI may continue to narrow as Libyan oil production rises, increasing supplies of light, sweet crude, according to Barratt.

“That spread should come back to more traditional levels the more production we get out of Libya,” Barratt said. Brent’s average premium to West Texas Intermediate was 63 cents in 2010, according to data compiled by Bloomberg.

Libya’s interim government, the National Transitional Council, said Oct. 20 that it plans to expand production to about 1.7 million barrels a day within 15 months. The Libyan rebellion that erupted in February caused output from Africa’s largest reserves to drop 97 percent to 45,000 barrels a day in August, according to a Bloomberg News survey.

Hedge Fund Bets

Hedge funds increased bullish bets on WTI oil to the highest level since May on expectations that the gap between the U.S. benchmark price and Brent will continue to narrow. Money managers boosted net-long wagers in futures and options by 15 percent in the week ended Oct. 25, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Oct. 28.

The premium of Brent over WTI shrank 22 percent during the period covered by the report as U.S. oil delivered to storage in Cushing, Oklahoma, rose 5.5 percent and London crude fell 0.2 percent.

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net

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

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