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Oil Falls to One-Week Low on U.S. Budget Concern, European Debt

Oil dropped for a third day in New York on signs that U.S. lawmakers won’t agree on cutting the budget deficit and on concern that Europe’s debt crisis will send the region’s economy into a recession.

Futures fell 0.8 percent on speculation that a debt-reduction committee’s inaction will set the stage for $1.2 trillion in automatic cuts. Growth in Germany, Europe’s largest economy, may slow next year, the Bundesbank said today. Saudi Arabian Oil Co. Chief Executive Officer Khalid Al-Falih said the world economy is at risk of a double-dip recession.

“It looks like the congressional committee won’t meet the deadline to reach an agreement, so automatic cuts will kick in,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The European debt crisis continues to put pressure on equities and commodities.”

Crude oil for January delivery fell 75 cents to $96.92 a barrel on the New York Mercantile Exchange, the lowest settlement since Nov. 9. The price ranged from $95.24 to $97.86. Futures are up 6.1 percent this year.

Brent oil for January settlement dropped 68 cents, or 0.6 percent, to end the session at $106.88 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to West Texas crude widened 7 cents to $9.96 a barrel, down from a record high of $27.88 on Oct. 14.

The 12-member bipartisan supercommittee will probably announce today that it can’t reach agreement on deficit savings, according to a Democratic aide. Today is the deadline for the Congressional Budget Office to receive information for scoring a proposal in advance of the supercommittee’s Nov. 23 target date for reaching a deal.

Spreading Crisis

Europe’s inability to contain the debt crisis that started in Greece more than two years ago led to a surge in Italian and Spanish bond yields last week. In Spain, Mariano Rajoy won the biggest parliamentary majority in an election in almost 30 years yesterday, and told Spaniards to brace for difficult times as the nation deals with the financial predicament.

“Every other day there’s a new concern about Europe,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “There continue to be questions about whether the euro can be saved.”

The Frankfurt-based Bundesbank cut its 2012 growth forecast to a range of 0.5 percent to 1 percent from a June prediction of 1.8 percent.

“Fear that something really bad could happen in Europe, hence demand could fall, has been the main reason prices have been so subdued,” Amrita Sen, an analyst with Barclays Capital in London, said in an interview with Owen Thomas on Bloomberg Television’s “Countdown.”

Higher Consumer Costs

Economic growth may suffer as the use of “exotic” and “unproven” sources of alternative energy pushes up consumer costs, Al-Falih said today at a conference in Riyadh. Global oil supplies “remain at comfortable levels,” said Al-Falih, whose state-run company is also known as Saudi Aramco.

Saudi Arabian Oil Minister Ali Al-Naimi said he is “very happy” with current crude prices, speaking to reporters today in Riyadh.

Oil surged to a five-month intraday high of $103.37 a barrel in New York on Nov. 17 after Enbridge Inc. said it will reverse the direction of the Seaway pipeline, adding an outlet for crude from the central U.S. and Canada, and on signs the U.S. economy is improving. Futures reached their low for the year of $74.95 on Oct. 4.

‘A Hangover’

“We’re experiencing a hangover after the rapid rise in prices that’s occurred since early October,” said Stephen Schork, president of the Villanova, Pennsylvania-based Schork Group Inc. “We’re going into the holidays now and are going to see liquidity dry up.”

There will be no trading in New York on Nov. 24 because of the U.S. Thanksgiving holiday and floor trading will end early on Nov. 25.

Hedge-fund managers and other large speculators increased their net-long position in New York crude futures in the week ended Nov. 15, the Commodity Futures Trading Commission said.

Managed-money bets that prices will rise, in futures and options combined, outnumbered short positions by 216,075 futures, the Washington-based regulator said in its Nov. 18 weekly Commitments of Traders report. Net long positions rose by 12,110 contracts, or 5.9 percent, from a week earlier.

Oil volume in electronic trading on the Nymex was 452,993 contracts as of 3:05 p.m. in New York. Volume totaled 676,141 contracts Nov. 18. Open interest was 1.26 million, the lowest level since Aug. 27, 2010.

Falling open interest “suggests that the recent price volatility is taking a toll on some participants who would normally hold positions,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The volume numbers, which were quite high last week, may signal that the market is increasingly in the hands of short-term traders.”

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