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Oil Falls Near Five-Month Low on Greece, Saudi Price Call

Oil fell to the lowest level in almost five months amid growing speculation that Greece may leave the euro currency union and as Saudi Arabia’s oil minister said prices should decline further.

Futures dropped 1.4 percent after Greece failed to agree on a unity government and European Union officials considered the country’s possible exit from the euro. Saudi Arabia wants crude prices lower than they are now, Oil Minister Ali al-Naimi said yesterday in Adelaide, Australia. The kingdom is pumping at its highest rate in almost three decades, OPEC data show.

“Greece is unable to form a coalition government and Europe is the biggest problem right now,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. “When the Saudis speak, the market tends to listen. They’ve been trying to talk down the market for a while.”

Crude for June delivery fell $1.35 to $94.78 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 19. Futures are down 14 percent from this year’s closing high of $109.77 on Feb. 24.

Brent for June settlement dropped 69 cents, or 0.6 percent, to $111.57 a barrel on the London-based ICE Futures Europe exchange.

The European benchmark contract’s premium to New York futures was at $16.79 a barrel today, the widest spread based on settlement prices since April 13.

“There is a total loss of confidence and the European situation is really weighing on the market,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “Saudi Arabia is definitely ramping up production and that could push down prices.”

Greek Government

Greek President Karolos Papoulias proposed a government of prominent non-politicians to steer the country and avert new elections. He will call a meeting at 2 p.m. tomorrow in Athens for leaders of all parties represented in parliament except for an ultra-nationalist party, said Evangelos Venizelos, the leader of Pasok, the third-biggest party.

At least five European central bankers have broached the once-taboo topic of Greece’s exit from the euro.

Although Greece accounts for 2 percent of the euro-area’s economic output, its exit would fragment a system of monetary union designed to be irreversible and might cause investors to raise the threat of withdrawal by other states.

The euro dropped as much as 0.7 percent to $1.2825, the lowest level since Jan. 18. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.

The Standard & Poor’s 500 Index and the Dow Jones Industrial Average each declined as much as 1.2 percent.

More Bearish

“The weak euro and the Greek crisis are making people more bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The general sense is that the global economy is going to underperform because of the European crisis.”

Saudi Arabia, the world’s biggest crude exporter, pumped 10.1 million barrels a day in April, about 200,000 barrels more than the previous month, a report by the Organization of Petroleum Exporting Countries showed May 10, citing official data submitted by the kingdom.

It produced 9.82 million barrels of oil a day in April, , according to Bloomberg estimates. That’s near the 9.85 million it pumped in August 2011, the highest level since December 1980.

“We want a lower price than where it is now,” al-Naimi said yesterday. “We need to get the price to a level of around $100” a barrel for Brent, he said.

Brent last traded below $100 briefly in October.

Oil Supply

Oil supply outweighs demand by 1.3 million to 1.5 million barrels a day, al-Naimi said yesterday.

West Texas Intermediate oil may decline to $90 a barrel and Brent to $105 as European central banks struggle to resolve the debt turmoil, Sabine Schels, an analyst with Bank of America Corp. in London, said in a May 11 report e-mailed today.

Hedge funds cut bullish oil bets by the most in three years the week before the Seaway pipeline begins to ease a U.S. stockpile glut.

Money managers reduced net-long positions on oil, or wagers prices will rise, by 33 percent in the seven days ended May 8, according to the Commodity Futures Trading Commission’s Commitments of Traders report on May 11. It was the largest drop since the week ended April 21, 2009.

Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD) plan to reverse shipments on the 150,000-barrel-a-day Seaway line from Cushing, Oklahoma, to the U.S. Gulf Coast on about May 17, according to an April 13 filing with regulators.

Electronic trading volume on the Nymex was 443,316 contracts as of 3:50 p.m. in New York. Volume totaled 530,233 contracts on May 11, 13 percent below the three-month average. Open interest was 1.55 million.

To contact the reporters 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

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