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Oil Drops a Second Day on China Slowdown, Europe Crisis

Oil dropped the most in almost two weeks in New York amid speculation global fuel demand will falter as China’s economy slows and Europe struggles to control its debt crisis.

Futures slid as much as 2.2 percent after a Chinese central bank adviser said the nation’s economy may cool further. International creditors meet in Athens tomorrow amid concern Greece may not meet its bailout targets, and after an aid package for Spain failed to prevent the euro declining to the lowest in more than two years against the dollar. Iraq resumed oil exports to Turkey after an explosion shut a pipeline that carries as much as 350,000 barrels a day, Sumaria News reported July 21, citing an unidentified Iraqi official.

“Europe’s debt crisis is continuing and China is becoming a concern,” Ken Hasegawa, a commodity-derivative sales manager at Newedge Group in Tokyo, said by phone. “There’s also still a lot of crude-oil supply in the market, so everyone understands the upside for prices will be limited.”

Crude for September delivery fell as much as $2.06 to $89.77 a barrel in electronic trading on the New York Mercantile Exchange and was at $89.78 at 2:40 p.m. Singapore time. The contract decreased 1.2 percent to $91.83 on July 20. Prices are 9.2 percent lower this year.

Brent oil for September settlement on the London-based ICE Futures Europe exchange dropped as much as $2.29, or 2.1 percent, to $104.54 a barrel. The European benchmark crude was at a $14.90 premium to New York-traded West Texas Intermediate grade. The spread was $15 on July 20, the widest in four days.

China Slowdown

A so-called technical “inside day” signals oil’s rally in New York over the past two weeks may be stalling, according to data compiled by Bloomberg. Futures on July 20 traded within the previous day’s price range, creating the candlestick formation. Sell orders may be clustered around chart resistance along the upper Bollinger Band, at about $92.27 a barrel today.

Economic growth in China, the world’s second-largest crude consumer, may slow to 7.4 percent this quarter, according to Song Guoqing, an academic member of the People’s Bank of China monetary policy committee. Gross domestic product expanded 7.6 percent in the three months ended June, the sixth quarterly deceleration and the weakest pace in more than three years. Song made the comments at a forum in Beijing on July 21.

The European Commission, the European Central Bank and the International Monetary Fund will meet to determine the fiscal position of Greece, which has been struggling to hold to obligations tied to 240 billion euros ($291 billion) of rescue funds over the past two years.

Consumer Confidence

The IMF, which indicated in March it won’t commit more money to Greece, will make a decision on its next disbursement in late August at the earliest based on the findings, two fund officials familiar with the situation said in recent days.

Consumer confidence in the euro area this month probably fell to the lowest since February, a Bloomberg News survey showed before data today. The European Union consumed 16 percent of the world’s oil last year, according to BP Plc (BP/)’s annual Statistical Review of World Energy. The U.S. accounted for 21 percent and China for 11 percent.

“The Spanish or European story will result in repeated volatility in the market,” Jarmo Kotilaine, the chief economist at National Commercial Bank in Jeddah, said by phone yesterday. “We are still not clear on what the policy options will be. Demand-erosion concerns keep coming back.”

The Kurdistan Workers’ Party, or PKK, claimed responsibility for the Iraqi explosion, Sumaria News said. The July 20 blast damaged one of two pipelines that transport oil from Kirkuk in northern Iraq to the Turkish port of Ceyhan, the Associated Press reported. Both pipelines were closed, AP said.

Hedge funds increased net-long wagers on oil by 4 percent in the seven days ended July 17 to 133,165 contracts, according to the U.S. Commodity Futures Trading Commission’s weekly report on July 20.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Yee Kai Pin in Singapore at kyee13@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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