Oil Drops From Two-Day High in New York Demand Outlook

Oil dropped from the highest close in two days in New York on speculation that fuel demand may falter as China’s economy slows and Europe struggles to tame its debt crisis.

Futures slid as much as 0.4 percent after gaining 1.4 percent on March 23. BYD Co., the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc., forecast profit may fall as much as 95 percent. Spain could reignite the European debt crisis, Italy’s Prime Minister Mario Monti warned as euro-area ministers prepare a deal to strengthen the region’s financial firewall. Oil prices are headed for a second quarterly increase amid concern tension with Iran will disrupt global crude supplies.

“If you look at demand growth, not only in the OECD countries but also China where we’re seeing a slowdown, global oil demand is relatively weak at the moment,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. said in a Bloomberg Television interview today. “While we’ve still got uncertainty around Iran I think oil prices will remain high but if things revert back to fundamentals, really there’s probably about a 20 percent drop from here.”

Oil for May delivery slipped as much as 44 cents to $106.43 a barrel in electronic trading on the New York Mercantile Exchange and was at $106.59 at 6:11 p.m. Sydney time. It rose $1.52 to $106.87 on March 23, the highest close since March 21. Prices are up 7.9 percent so far this year after advancing 25 percent last quarter.

Trading Range

Brent oil for May settlement was at $124.91 a barrel, down 22 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $18.32.

“We’ve priced in the major supply and demand issues, and really in terms of West Texas it’s going to take a fair bit to break us out of that $103.50 to $108.50 a barrel range,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney.

BYD’s first-quarter profit may plunge by between 65 percent and 95 percent, the company said in a statement yesterday. China’s vehicle sales this year will probably miss their 8 percent growth forecast as the slowing economy and rising fuel costs curb buying, said an official at the state-backed auto association on March 20.

Spain’s 10-year yields climbed for a third week last week after Willem Buiter, Citigroup Inc. chief economist, said the nation faced an increasing risk of debt restructuring. Euro-area finance ministers meet in Copenhagen starting March 30 as they seek an agreement to raise a 500 billion-euro ($664 billion) ceiling on bailout funding.

Sanctions on Iran

China was the world’s second-biggest oil user in 2010, accounting for 11 percent of consumption, according to BP Plc’s Statistical Review of World Energy. European Union nations accounted for 16 percent and the U.S. for 21 percent.

“Time is short” to solve the showdown with Iran diplomatically, U.S. President Barack Obama said today in Seoul before a summit on nuclear security. The U.S. and the European Union are imposing sanctions on Iran to halt its nuclear program. The Persian Gulf nation has threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s oil, in response to an embargo on its crude.

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