Oil Drops From 1-Week High in New York on Europe Debt Woe

Oil fell from the highest price in almost a week as concern that European debt-crisis talks will falter and threaten the economic recovery outweighed speculation tension in the Middle East will disrupt crude supplies.

New York futures slid as much as 1.2 percent after Chancellor Angela Merkel and President Francois Hollande clashed over the weekend on a timetable for starting joint oversight of the Europe’s banking sector. Iran will defend itself if attacked by Israel, according to excerpts of a CNN interview with Iranian President Mahmoud Ahmadinejad scheduled for broadcast today.

“The market wants to see proof that Europe is climbing out of the doldrums,” said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity newsletter in Sydney. “The market has become a lot more pessimistic.”

Oil for November delivery declined as much as $1.11 to $91.78 a barrel in electronic trading on the New York Mercantile Exchange and was at $92 at 2:55 p.m. Singapore time. It rose 47 cents to $92.89 on Sept. 21, the highest close since Sept. 18. Front-month prices fell 6.2 percent last week, the biggest weekly decline since June, and are down 6.9 percent this year.

Brent oil for November settlement decreased $1.02 to $110.40 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate was at $18.40, down from $18.53 on Sept. 21.

A deadlock over Europe’s banking union may delay a key building block in resolving the region’s debt crisis. Integration should happen “the earlier, the better,” Hollande told reporters in the German town of Asperg on Sept. 22. Merkel said at the briefing that there’s no point doing something fast if it then doesn’t work.

Central Banks, Iran

Oil in New York rose above $100 this month for the first time since May amid speculation European steps to tame the crisis and monetary easing by central banks would boost the global economy. The European Central Bank said Sept. 6 it would purchase bonds while the U.S. Federal Reserve said Sept. 14 it would start buying mortgage securities.

Prices have also gained since U.S. and European Union sanctions on Iran’s energy exports took full effect in July, raising tension in the Middle East, which supplies a third of the world’s crude. The sanctions aim to persuade Iran to curb its atomic program, which the West alleges is being used to build nuclear weapons.

Israeli Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak have indicated the country may strike against the nuclear facilities as negotiations stall over the Islamic republic’s program.

Hedge Funds

Israel “will be destroyed” if it initiates action, Major General Mohammad Ali Jafari, the commander in chief of Iran’s Revolutionary Guard Corps, said Sept. 22, according to the state-run Mehr news agency.

“The current drop in prices cannot be sustained unless sanctions on Iran are lifted, quantitative easing plans are shelved, and geopolitical tension in the Persian Gulf subsides,” Nabil Farhat, a partner at Abu Dhabi-based Al Fajer Securities, said in an e-mail yesterday.

Hedge funds increased bullish oil bets for a fifth week in the seven days ended Sept. 18 on speculation that the Federal Reserve’s latest round of economic stimulus will boost hiring and bolster demand. Money managers added to net-long positions, or wagers on rising prices, by 5.6 percent, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Sept. 21. It was the highest level since May 1.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

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

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