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Brent Oil Drops on Concern Europe Debt Woes May Curb Use

Brent crude futures dropped for a second day this week amid concern that Europe’s debt crisis may curb oil consumption, while U.S. benchmark West Texas Intermediate was little changed.

North Sea Brent declined as much as 1 percent while European equities fell and the euro declined against the dollar. A cease-fire in Syria and plans for renewed negotiations next month between Iran and the five permanent members of the United Nations Security Council plus Germany reduced the likelihood of more supply disruptions in the Middle East. U.S. crude stockpiles climbed for a fourth week, data from the industry- funded American Petroleum Institute showed.

“The Brent market is gradually weakening on poor fundamentals and a lower geopolitical risk in the market,” Torbjoern Kjus, an oil analyst at DNB ASA of Norway, said by phone from Oslo. “Europe is not looking good at all, and it’s not going to look any better for oil demand any time soon,” said Kjus, who forecasts the grade will average $115 this year.

Brent for June settlement fell as much as $1.23 on the London-based ICE Futures Europe exchange and was down 95 cents, or 0.8 percent, at $117.83 a barrel as of 1:46 p.m. local time. The European benchmark contract’s front month premium to West Texas Intermediate was at $13.61, the lowest since Jan. 31. The spread was at $14.14 yesterday.

U.S. crude for May delivery was at $103.68 a barrel, down 52 cents, in electronic trading on the New York Mercantile Exchange. The contract yesterday gained 1.2 percent to $104.20, the highest close since April 2. Prices are 4.9 percent higher this year.

Pressure on Brent

“Brent is under pressure from the renewed flaring-up of the sovereign-debt crisis in the euro zone, the resulting rise in risk aversion and the decrease in the risk premium due to recent signs of a slight easing in the Iran crisis,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a note today.

Iranian delegates will meet with the five permanent UN Security Council members and Germany on May 23 in Baghdad after “constructive” talks in Istanbul, the European Union’s foreign policy chief said April 15.

Officials from 57 countries, meeting in France, voted yesterday to tighten sanctions on Syria. Russia halted deliveries of light arms to Syria to avoid exacerbating a conflict between government forces and opposition groups, a person close to the Defense Ministry in Moscow said today. Syria was the eight-largest oil producer in the Middle East in 2010, according to the most recent data from BP Plc.

U.S. Stockpiles

U.S. crude stockpiles increased 3.4 million barrels last week, the API said yesterday. An Energy Department report today may show they expanded 1.8 million barrels, according to the median of 10 analyst estimates in a Bloomberg News survey.

Gasoline inventories dropped 2.6 million barrels, the API said. They are forecast to slip 1.1 million barrels, according to the Bloomberg survey. Distillate supplies, a category that includes heating oil and diesel, fell 2.4 million barrels compared with a projected 125,000 barrel decline.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines.

President Barack Obama urged Congress yesterday to bolster federal supervision of oil markets, including bigger penalties for market manipulation and greater power for regulators to increase the amount of money traders must put up to back their energy bets.

To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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