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Oil Slips From 30-Month High on Concern About Portuguese Debt

Oil slipped from the highest price in more than two years in New York on concern that demand from Europe will be slow to recover if Portugal becomes the third country using the euro to require emergency aid.

Crude dropped for the first time in four days after Fitch Ratings cut Portugal’s credit ranking and U.S. durable goods orders unexpectedly declined. Oil also fell after failing to breach technical resistance at $106.95, the March 7 high. Futures rose earlier on U.S. and allied airstrikes in Libya.

“We can’t support $100 oil, and that’s becoming more and more evident as we see these economic figures come out from Europe and the U.S,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “We saw the highs, and we couldn’t press through.”

Crude for May delivery fell 15 cents to settle at $105.60 a barrel on the New York Mercantile Exchange. Futures touched $106.69 in intraday trading. Prices have climbed 31 percent in the past year. Yesterday, the contract reached $105.75, the highest settlement since Sept. 26, 2008.

Brent oil for May settlement gained 17 cents to $115.72 a barrel on the London-based ICE Futures Europe exchange.

Portugal’s debt woes may require a bailout of as much as 70 billion euros ($99 billion), said two European officials with direct knowledge of the matter. The EU lent 177.5 billion euros last year to Greece and Ireland to avert defaults, triggering a backlash in Europe’s better-off countries such as Germany.

Fitch announced its ratings cut as a summit of European Union leaders got under way in Brussels to discuss the situation. Portuguese Prime Minister Jose Socrates resigned before the meeting after plans to cut the budget were rejected by parliament.

Fitch Downgrade

Fitch downgraded Portugal’s long-term foreign and local currency issuer default ratings by two levels to ‘A-’ and its short-term issuer default ratings to “good” from “highest” credit quality.

“The worries are back there about Europe again with concerns about Portugal,” said Tom Bentz, a broker with BNP Paribas Commodity Futures in New York. “We also had the durable goods orders come out this morning, and that gave us a bit more of a pullback.”

Orders for long-lasting goods in the U.S. unexpectedly dropped 0.9 percent in February after a 3.6 percent gain the prior month that was higher than initially reported, the Commerce Department said today in Washington.

Air Strikes

Earlier, crude gained as much as 0.9 percent when U.S. and allied warplanes carried out strikes against Libya, heightening concern that oil supplies from the region may be disrupted.

French aircraft bombed a Libyan air force base 250 kilometers (150 miles) south of the country’s coast late yesterday, Thierry Burkhard, a military spokesman, said today. Libyan government forces increased their attacks on cities, killing 16 people yesterday in Misrata in the west and six in the nearby coastal town of Zentan, Abdulhafid Ghoga, an opposition spokesman, said at a news conference in Benghazi.

Oil supplies from Libya, Africa’s third-largest producer, collapsed to a “trickle” last week from 1.6 million barrels a day in January and may be halted for months because of sanctions, the International Energy Agency estimates.

German Chancellor Angela Merkel called for a boycott of Libyan oil as a way to stop finance flows to the regime of long-time Leader Muammar Qaddafi.

There should be “no more oil exports from Libya to European countries,” Merkel told lawmakers in Berlin in a speech on the European Union summit that began today. Germany supports the goals of the current military intervention, which it abstained from approving in the United Nations, she said.

Oil Supply

Oil shipments from the Organization of Petroleum Exporting Countries will drop to the lowest level since October as the fighting in Libya halts exports, according to tanker-tracker Oil Movements.

Shipments will fall to 23.03 million barrels a day in the four weeks to April 9, down 1.8 percent from 23.46 million in the period ended March 12, the consultant said in a report today. The data exclude Ecuador and Angola. Exports from West Africa to Europe and the U.S. will jump as refiners seek to replace disrupted Libyan shipments, the company said.

OPEC members are more likely than at any time in the past two years to agree to a formal supply increase when they meet in June because of a forecast for a “sustained” supply disruption, according to David Kirsch, a Kansas City, Kansas-based analyst with PFC Energy.

“This is certainly the first production increase they’ll be discussing since 2008,” Kirsch said. “Under any scenario, even if Qaddafi were to depart tomorrow, Libyan oil is going to remain at limited production for a significant period of time.”

Oil volume in electronic trading on the Nymex was 503,961 contracts as of 3:33 p.m. in New York. Volume totaled 519,675 contracts yesterday, 36 percent below the average of the past three months. Open interest was 1.51 million contracts.

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