Oil Declines on Equity Drop, Reserve Release Discussion

Oil fell to a six-week low as U.S. equities dropped and France said governments are moving closer to an agreement on a release from emergency stockpiles to curb price gains.

Futures slipped the most this year and stocks dropped a third day as Standard & Poor’s said Greece may have to restructure its debt again. French Prime Minister Francois Fillon said the prospects of an accord on tapping strategic reserves are good and the International Energy Agency said it’s ready to act if supplies are disrupted.

“The European woes are rearing their ugly head again and that’s having an impact on all the markets,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The market is also down on talk that seems to confirm that there will be some sort of global strategic petroleum reserve release.”

Crude oil for May delivery dropped $2.63, or 2.5 percent, to $102.78 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 16. It was the biggest decline since Dec. 14. Prices are up 4 percent this year and set for a second quarterly gain.

Brent oil for May settlement decreased $1.77, or 1.4 percent, to end the session at $122.39 a barrel on the London- based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate, the grade traded in New York, rose to $19.61, the widest since Oct. 24.

The Standard & Poor’s 500 Index fell 0.5 percent at 3:07 p.m. before paring the decline in late trading. The dollar strengthened 0.2 percent versus the euro. A stronger U.S. currency reduces the investment appeal of commodities.

Technical Support

“Equities are having a real problem today and the dollar is up,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We’ve broken through technical support, which has accelerated the move lower. Thursday’s low of $104.50 was key support.”

The May contract settled below its 50-day moving average for the first time since Feb. 10. The average was $104.01. Technical analysts use historical chart patterns and tools such as moving averages to predict price movements.

Consumers can “reasonably expect” a reserve release, Fillon told France Inter Radio today. He said not to expect any “miracles” in reducing oil prices.

Yesterday, Industry Minister Eric Besson said the U.S. government had proposed a release, and Budget Minister Valerie Pecresse said France was waiting for a report from the IEA before making a decision. France will use its reserve only in coordination with other countries, Finance Minister Francois Baroin said on Europe 1 radio.

Coordinated Release

The IEA, the energy adviser to 28 countries, coordinated the sale of 60 million barrels of crude and refined products from reserves last year after supplies from Libya were disrupted.

The Obama administration hasn’t made a decision and no specific action has been proposed, Jay Carney, the White House press secretary, said today.

Oil reached $110.55 on March 1, the highest level since May 4, amid speculation that Western sanctions aimed at halting Iran’s nuclear program will disrupt Middle East shipments. Negotiations on the nuclear program will resume next month, Ali Akbar Salehi, the nation’s foreign minister, said yesterday.

“There are worries about the release of strategic petroleum reserves putting some downward pressure on the market,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “Tension with Iran seems to have eased a bit as well.”

Lower Prices

There is “no rational reason” for prices at current levels and Saudi Arabia would like to see them fall, the kingdom’s oil minister, Ali al-Naimi, said yesterday in an editorial in the Financial Times. The nation can boost output by 25 percent immediately, he told reporters in Doha, Qatar, on March 20.

“Al-Naimi keeps trying to talk the market down,” Bentz said. “It’s clear what they want to see.”

The Organization of Petroleum Exporting Countries will increase shipments through the middle of April, according to tanker-tracker Oil Movements. OPEC will export 23.99 million barrels a day in the four weeks to April 14, compared with 23.36 million in the period to March 17, the Halifax, England-based researcher said today in an e-mailed report. The figures exclude Angola and Ecuador.

U.S. Inventories

U.S. crude stockpiles rose 7.1 million barrels last week to 353.4 million, the highest level since Aug. 26, an Energy Department report showed yesterday. Gasoline inventories fell 3.54 million barrels to 223.4 million.

“People are taking the idea of a strategic petroleum release more seriously,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We’re also seeing a secondary reaction to yesterday’s inventory numbers. That explains why WTI is the weakest on the board and gasoline the strongest.”

Gasoline for April delivery rose 0.51 cent to settle at $3.4006 a gallon in New York. The contract touched $3.4455, the highest intraday price since April 29.

Electronic trading volume on the Nymex was 519,363 contracts as of 3:19 p.m. in New York. Volume totaled 568,804 contracts yesterday, 11 percent below the three-month average. Open interest was 1.56 million.

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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