Oil Little Changed, Reversing Gains on Possible S&P Downgrade

Oil was little changed, reversing an earlier gain as Standard & Poor’s planned to say it may strip Germany and France of their AAA credit ratings and put all 17 euro nations on review for possible downgrade.

Prices pared gains late in the day after reports that the agency may strip France and Germany of their AAA ratings amid Europe’s debt crisis. Prices advanced earlier after a Tehran- based newspaper cited a foreign ministry spokesman as saying crude will exceed $250 a barrel if nations threaten to ban Iranian exports.

“The sovereign debt concern is far from over,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “The European economy is teetering on recession and the economic concern is weighing on commodity prices.”

Crude for January delivery climbed 3 cents to $100.99 a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 16 and the second-highest since June 9. Prices are up 11 percent this year.

Brent futures for January settlement slid 13 cents to $109.81 a barrel on the London-based ICE Futures Europe exchange.

S&P Decision

Oil slipped in the last hour of trading after on reports that S&P would place the euro area nations, including six AAA rated countries, on a negative outlook depending on the result of a summit of European Union leaders on Dec. 9. John Piecuch, a spokesman for S&P in New York, had no comment.

Prices rose earlier on speculation that Europe’s debt crisis was easing. Italian 10-year bond yields fell by the most in almost four months after Prime Minister Mario Monti proposed budget cuts. Monti presented the 30 billion-euro ($40 billion) plan today, before a Dec. 9 debt summit in Brussels.

French President Nicolas Sarkozy said today after meeting with German Chancellor Angela Merkel that Europe’s two biggest countries agreed to back automatic penalties for deficit violators, a European monetary fund and monthly summit meetings. He said they aimed to reach consensus by March.

“There is some optimism about Europe and the geopolitical tension is helping oil too,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Part of what’s helping push oil prices higher is the cue we are getting off the equity market.”

Equities Gain

The Standard & Poor’s 500 Index, which last week had the biggest increase since 2009, rose 1 percent. The Dow Jones Industrial Average added 0.7 percent.

Prices also advanced after Ramin Mehmanparast, an Iranian Foreign Ministry spokesman, told the Shargh newspaper in an interview published yesterday that even verbal threats to block exports of Iranian oil will cause prices to rise.

“As soon as such a plan is raised seriously, the oil price will rise to above $250 a barrel,” he said. “I do not think the situation in the world and especially in the West today is adequately prepared to raise such discussions.”

Iran pumped 4.25 million barrels a day of oil in 2010, 5.2 percent of the world’s total production, according to BP Plc’s Statistical Review of World Energy.

The European Union added 180 Iranian officials and companies to a blacklist on Dec. 1 to try to pressure the world’s third-largest crude exporter to curtail its nuclear program. Iran says it isn’t seeking technology to build nuclear weapons.

Forecast Increased

Raymond James & Associates Inc. analysts including Marshall Adkins in Houston raised their 2012 forecast for West Texas Intermediate oil to $92.50 from the previous $85 as the planned reversal of the Seaway pipeline allows barrels from the Midcontinent to reach the Gulf of Mexico. The Brent price estimate was left unchanged at $100 a barrel.

Hedge funds and other large speculators increased wagers on rising crude prices by 2.6 percent in the week ended Nov. 29, according to the Commodity Futures Trading Commission’s Commitments of Traders report Dec. 2. Money managers increased bullish oil bets by 5,007 futures and options combined to 194,695.

Trading volume was 401,683 contracts as of 4:07 p.m. Volume was 465,228 on Dec. 2, 30 percent below the three-month average. Open interest was 1.32 million, the highest level since Nov. 16.

To contact the reporter on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

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

Press spacebar to pause and continue. Press esc to stop.

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.