Oil dropped, erasing earlier gains, on concern that new leadership in Italy may not contain the European debt crisis and China’s demand for crude may weaken.
West Texas Intermediate fell as much as 1.3 percent after rising earlier to $99.69 a barrel, the highest since July 26. Italy’s president offered Mario Monti, a former European Union competition commissioner, the post of prime minister yesterday. The International Monetary Fund’s Deputy Managing Director Zhu Min said yesterday the world’s second-largest economy was heading for a “soft landing” as growth slows.
“With Europe’s struggle far from over and signs of a slowdown in China, the world’s second largest consumer, the road ahead could be bumpy for oil prices,” Glen Ward, head of retail derivatives at London Capital Group Ltd. said in a note.
Crude for December delivery was at $98.17 a barrel, down 82 cents, in electronic trading on the New York Mercantile Exchange at 1:35 p.m. London time. Prices rose 5 percent last week and have increased for six consecutive weeks, the longest run of gains since April 2009.
Brent oil for December settlement declined 83 cents to $113.33 a barrel on the London-based ICE Futures Europe exchange. The more-active January contract was 59 cents lower at $112.34. December futures, which expire tomorrow, traded at a premium of $15.21 to New York crude, compared with a record $27.88 on Oct. 14. The spread narrowed 14 percent last week.
The euro weakened as much as 0.8 percent to $1.3636 after Italy sold 3 billion euros ($4 billion) of five-year bonds, the maximum target, at the highest yield in more than 14 years.
“The euro is under renewed pressure and the stronger U.S. dollar weighs further on market sentiment and hurts any possible risk appetite,” Myrto Sokou, a London-based commodities analyst at Sucden Financial Ltd. said in an e-mail.
The change in Italian government may not help resolve the European debt crisis, said Ole Hansen, senior manager of trading advisory at Saxo Bank A/S in Copenhagen. “We have a new leader, which removes some of the uncertainty, but the problems are still there,” he said.
Libya is preparing tenders for the sale of crude next year under long-term contracts, Nuri Berruien, the chairman of the country’s National Oil Corp., said today in an interview in the Qatari capital Doha. The government plans to begin selling about 400,000 barrels a day of crude in January before increasing to at least 700,000 barrels a day by mid-2012, he said.
Libya, holder of Africa’s largest oil reserves, pumped almost 1.6 million barrels a day in January, before protests against former leader Muammar Qaddafi began.
Crude prices at $100 to $110 a barrel is fair for producers and consumers alike, Algeria’s Oil Minister Youcef Yousfi told reporters in Doha today. Conditions in oil markets are changing rapidly, he said.
Oil markets are in balance and not oversupplied, ministers from OPEC-member nations Algeria, Iran and Nigeria said yesterday. The Organization of Petroleum Exporting Countries will meet in Vienna on Dec. 14 to decide whether to cut output as Libyan crude production recovers.
The crude market is “too focused on the downside risks” as demand looks set to grow faster than production, according to analysts at Goldman Sachs Group Inc.
“It is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supply,” Samantha Dart and Jeffrey Currie wrote in a note.
Hedge-funds and other money managers raised bullish bets on Brent crude by 8,968 contracts in the week ended Nov. 8, weekly data from ICE Futures Europe showed. Their speculative bets that Brent will climb, in futures and options combined, outnumbered short positions by 63,526 lots, ICE said in its Commitment of Traders report.
The U.S. Commodity Futures Trading Commission will release its weekly Commitments of Traders report today because of a federal holiday on Nov. 11, a notice on its website said.