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

Oil dropped from the highest close in almost a week as renewed discord among European leaders on measures to stem the region’s debt crisis outweighed concern that tensions in the Middle East may disrupt crude supplies.

New York futures fell as much as 1.7 percent after German Chancellor Angela Merkel and French President Francois Hollande disagreed over closer integration of Europe’s banking system at the weekend. Iran, OPEC’s third-largest oil producer, will defend itself if attacked by Israel, according to excerpts of a CNN interview with Iranian President Mahmoud Ahmadinejad scheduled for broadcast today.

“European leaders are spending more time bickering amongst themselves than solving their massive problems,” Michael Hewson, a London-based analyst at CMC Markets, said by phone. “Unless there’s a shocker out of the Middle East, I don’t see anything but downward pressures on oil.”

Oil for November delivery declined as much as $1.55 to $91.34 a barrel in electronic trading on the New York Mercantile Exchange and was at $91.94 at 1:27 p.m. London time. It rose 47 cents to $92.63 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 7 percent this year.

Brent oil for November settlement decreased $1.26 to $110.16 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate was at $18.22, down from $18.53 on Sept. 21.

European Talks

The disagreement between the French and German leaders was the only point of public discord. Integration should happen “the earlier, the better,” Hollande told reporters in the German town of Asperg on Sept. 22. Merkel said that there’s no point doing something fast if it then doesn’t work.

“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 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.

Preemptive Strike

Israeli Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak have indicated that, as Iran proceeds with its nuclear work and negotiations stall, Israel may have no choice but to launch a preemptive strike in self-defense.

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 Fed’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.

In London, funds and other money managers reduced bullish bets on Brent crude by 7,514 contracts last week from their highest level in more than four months, according to data from ICE Futures Europe.

To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

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

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