Oil Drops From Five-Week High on U.S Stockpiles, European Debt Downgrade

Oil fell from the highest price in almost five weeks on speculation that U.S. crude supplies are rising and demand for fuel may falter as Europe grapples with lower credit ratings.

Futures declined as much as 0.5 percent after Moody’s Investors Service cut the debt ratings of six European countries and revised its outlook to “negative” for the U.K. and France. Euro-area finance chiefs convene tomorrow for a meeting on financial aid for Greece, while a U.S. Energy Department report may show crude stockpiles climbed a fourth week, according to a Bloomberg News survey of analysts.

“The news from Moody’s is a reminder of the risks that remain” for oil demand in Europe, said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney who forecasts New York crude will trade between $98.50 and $102.50 a barrel. “The meeting of euro finance ministers tomorrow will coincide with the publication of the U.S. inventory data. We’re seeing further concerns that a deal for Greece might not come through.”

Oil for March delivery slid as much as 54 cents to $100.37 a barrel in electronic trading on the New York Mercantile Exchange. It was at $100.61 at 8:05 a.m. London time. The contract rose 2.3 percent yesterday, the biggest gain since Jan. 3. Prices are 19 percent higher than a year ago.

Brent oil for March settlement slipped 58 cents to $117.35 a barrel on the ICE Futures Europe exchange. The contract expires today. The more-actively traded April future fell 52 cents to $116.87. The European benchmark contract’s premium to New York-traded West Texas Intermediate narrowed to $16.67 from $17.02. It reached a record of $27.88 on Oct. 14.

Globex Glitch

Yesterday’s settlement prices for crude and oil-product futures and options were based on floor trading in New York after CME Group Inc. halted electronic trading on its Globex system because of technical issues.

The glitch “pushed traders onto the Nymex floor, turning an otherwise sleepy final half hour into a rush to close trades,” Stephen Schork, president of the Schork Group in Villanova, Pennsylvania, said in a note to clients today.

U.S. crude inventories probably increased by 1.6 million barrels last week in the longest buildup since April, according to the median of 10 analyst estimates in the Bloomberg News survey. Gasoline supplies may have gained 675,000 barrels, the survey showed.

Extraordinary Meeting

Distillate supply fell 1.1 million barrels to 145.5 million, the survey showed. Distillate fuels, which include heating oil and diesel, gained 1.17 million barrels to 146.6 million in the week ended Feb. 3.

Moody’s lowered its ratings on Spain, Italy, Portugal, Slovakia, Slovenia and Malta, citing “uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework.”

Euro-area finance chiefs will convene in Brussels tomorrow for their second extraordinary meeting on Greece in a week. Ministers declined to ratify a 130 billion-euro ($171 billion) bailout for Greece in a special session on Feb. 9, demanding that officials there put their verbal commitments into law. Greek lawmakers approved the austerity measures yesterday.

Bullish Bets

Hedge-funds and other money managers raised bullish bets on Brent crude by 9,023 contracts in the week ended Feb. 7, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 90,395 lots, the London-based exchange said today in its weekly Commitment of Traders report. The data is for futures and options combined.

Bahrain’s energy minister said he would prefer oil prices to remain close to current levels, which allow producers to invest in output capacity without putting economic growth in the West at risk. Prices of $110 a barrel or more may “derail recoveries in a number of fragile Western economies,” Abdul Hussain Ali Mirza said yesterday.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editor responsible for this story: Mike Anderson at manderson34@bloomberg.net

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