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Crude Oil Heads for Biggest Weekly Drop Since September on Europe Outlook

Crude fell, capping the biggest weekly decline since September, on concern that European economic growth will slow, curbing fuel demand.

Futures dropped to the lowest level in more than six weeks after Fitch Ratings lowered France’s outlook and put nations including Spain and Italy on review for downgrade. Exports from the euro area dropped in October, led by declines in Germany and Spain, according to the European Union’s statistics office.

“The market is going to be concerned about Europe for a while,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “Oil is still in a down trend in the short term, so I won’t be surprised if prices fall to something close to $90.”

Oil for January delivery fell 34 cents, or 0.4 percent, to $93.53 a barrel on the New York Mercantile Exchange, the lowest settlement since Nov. 2. The contract tumbled 5.9 percent since Dec. 9, the biggest weekly decline since Sept. 23. Prices are up 2.4 percent this year after climbing 15 percent in 2010.

Brent oil for February settlement slipped 25 cents to $103.35 a barrel on the London-based ICE Futures Europe exchange. The January contract expired yesterday.

Fitch changed its outlook on France to negative, while affirming its AAA rating. It also said all investment-grade countries in the euro region rated below AAA are subject to a “Rating Watch Negative” review, which Fitch expects to complete by the end of January, according to a statement today in London.

Fitch Rating

“Of particular concern is the absence of a credible financial backstop,” Fitch said in an e-mailed statement.

The 27 member states of the EU accounted for 16 percent of global oil demand last year, based on BP Plc’s annual Statistical Review of World Energy.

Exports from the euro region dropped a seasonally adjusted 1.9 percent in October from September, when they fell 1.1 percent, the EU’s statistics office in Luxembourg said today. Imports dropped 0.7 percent and the trade surplus shrank.

The French economy will shrink this quarter and next, suggesting the nation is in a recession as investment and consumer spending stagnate, national statistics office Insee said yesterday.

The euro area’s second-largest economy will shrink 0.2 percent in the fourth quarter and 0.1 percent in the first quarter of 2012, before expanding 0.1 percent in the following three months, Paris-based Insee said.

Price Outlook

Crude may fall next week on speculation that Europe’s economy will shrink as the region’s debt crisis spreads, a Bloomberg News survey showed.

Nine of 17 analysts, or 53 percent, forecast oil will decrease through Dec. 23. Six respondents, or 35 percent, predicted prices will increase and two estimated there will be little change. Last week, 41 percent of surveyed analysts expected a decline.

Oil extended losses as the euro erased gains against the dollar and U.S. stocks retreated from earlier advance. The euro was little changed at $1.3035 at 3:16 p.m. in New York, after rising to $1.3084 in intraday trading. A weaker euro and stronger dollar reduces oil’s appeal as investment alternative.

The Standard & Poor’s 500 Index (SPX) pared its advance to 0.4 percent from as much as 1.3 percent.

Technical Levels

Oil also decreased as the January contract settled below the 50-day moving average for a second day. It closed below the 200-day moving average for a third session.

Oil rose as much as 1 percent earlier after the Italian government won a confidence vote in Parliament on a 30 billion- euro ($39 billion) emergency budget plan and on optimism the European Union will meet a Dec. 19 deadline for funding a crisis-fighting package.

Luxembourg’s Jean-Claude Juncker, who leads a group of finance ministers from the region, said the EU should meet the goal for arranging loans to the International Monetary Fund.

“The market seems completely disjointed,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. “One day you are talking about wonderful sentiment for Europe and the next day things aren’t looking that good.”

Oil volume in electronic trading on the Nymex was 447,102 contracts as of 3:16 p.m. in New York. Volume totaled 564,037 contracts yesterday, 13 percent below the three-month average. Open interest was 1.33 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net Moming Zhou in New York at Mzhou29@bloomberg.net;

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

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