Oil declined for the first time in seven days as a surge in the European Central Bank’s balance sheet to a record highlighted the growing risks of the region’s debt crisis and threatening fuel demand.
Futures dropped 2 percent after the ECB lent financial institutions more money last week in an attempt to keep credit flowing. The euro tumbled to the lowest level since January against the dollar, curbing investor demand for commodities. Oil also decreased on reduced concern that Iran will block the Strait of Hormuz.
“The biggest news right now is that the euro is coming in pretty strongly,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “It was time for a correction after rising for six days.”
Crude oil for February delivery fell $1.98 to $99.36 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 21. It was the biggest decline since Dec. 14. Futures have climbed 8.7 percent this year, extending last year’s advance of 15 percent.
Futures were little changed from the settlement after the American Petroleum Institute reported that oil inventories rose 9.57 million barrels to 339.6 million last week. February crude decreased $1.93, or 1.9 percent, to $99.41 a barrel in electronic trading at 4:32 p.m.
Brent oil for February settlement fell $1.71, or 1.6 percent, to end the session at $107.56 a barrel on the London-based ICE Futures Europe exchange. The European contract’s premium to New York crude was $8.20 a barrel at today’s close, up from $7.93 yesterday, the smallest spread since Jan. 20.
New York oil prices surged 1.7 percent to $101.34 yesterday, the highest settlement since Nov. 16, during a period of slow trading. Volume on the Nymex totaled 269,086 contracts as of 4:29 p.m. Volume was 216,467 yesterday, down 65 percent from the average of the past three months. Open interest was 1.33 million contracts.
“The significant rally yesterday was probably exaggerated because of low volume,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
Lending to euro-area banks jumped 214 billion euros ($280 billion) to 879 billion euros in the week ended Dec. 23, the Frankfurt-based ECB said in a statement today. The balance sheet increased 239 billion euros to 2.73 trillion euros.
The 17-nation currency fell against the dollar as concern increased that the region’s sovereign-debt crisis will reduce economic growth in the region. The euro decreased as much as 1.2 percent to $1.2912. The Standard & Poor’s 500 Index declined 1.2 percent to 1,249.64, erasing the year’s gains.
“We’re trying to balance the bullish and bearish influences in the market,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “All of the commentary about Iran has been supportive while the macroeconomic picture, as expressed by the S&P 500, is negative.”
Iran’s official Islamic Republic News Agency yesterday cited Vice President Mohammad Reza Rahimi as saying the country would bar shipments through the strait if sanctions are imposed on its oil exports, while the country’s Press TV today cited Navy Commander Habibollah Sayari as saying that the blockage would be “easy.”
About 15.5 million barrels of oil a day, or a sixth of global consumption, pass through the Strait of Hormuz between Iran and Oman at the mouth of the Persian Gulf, according to the U.S. Energy Department. Iran’s navy started a 10-day exercise east of the passage that involved the use of submarines, ground-to-sea missile systems and torpedoes, Press TV said Dec. 24.
The U.S. won’t tolerate a disruption to shipping in the Strait of Hormuz, Rebecca Rebarich, a Navy spokeswoman, said in an e-mail.
“It’s important to remember that there’s a very low probability that Iran would attempt to block the Strait of Hormuz,” Evans said. “The likelihood of something occurring is much lower than 50-50.”
U.S. oil inventories probably for fell a third week, according to a Bloomberg News survey before tomorrow’s Energy Department report. Stockpiles declined 2.5 million barrels, according to the median estimate of 10 analyst estimates.
Oil inventories have declined in December for the past five years as refiners reduced stockpiles at the year end to minimize their taxes. Texas and Louisiana assess taxes based on the fair-market value of inventories on Jan. 1.
The department is scheduled to release its weekly report at 11 a.m. tomorrow in Washington, a day later than usual because of the Christmas holiday.