Oil Fluctuates Amid Speculation EU Outlook Will Worsen

Oil fluctuated in London amid speculation that the European Union’s economy will fail to grow, as the region’s leaders gathered in Brussels for a summit.

Brent crude was little changed after falling as much as 1.2 percent as the EU continued to battle the financial crisis that claimed Cyprus this week as its fifth victim. Economic confidence in the euro area slumped to the lowest in more than 2 1/2 years in June, the European Commission said. Germany reported that unemployment in the region’s biggest economy rose for a fourth month this year.

“The oil price is a reflection of the market’s expectation that there will be no growth in Europe for the next few years,” said Michael Hewson, analyst at London-based CMC Markets UK Plc who predicts Brent may fall as low as $76 a barrel in the next six months. “Although Iran could provide potential for prices to move higher in the short term, the overall outlook is down, based on the lack of economic growth.”

Brent oil for August settlement traded at $93.58 a barrel, up 8 cents, at 1:19 p.m. on the London-based ICE Futures Europe exchange after falling as much as $1.09 to $92.41. The European benchmark’s premium to New York-traded West Texas Intermediate narrowed to $13.10, compared with $13.29 yesterday. Brent has lost 24 percent this quarter, the steepest slide since the last three months of 2008.

Euro-Zone Economy

WTI for August delivery on the New York Mercantile Exchange increased traded at $80.48 a barrel, up 27 cents, after rising as high as $80.70. Prices are down 22 percent this quarter, also the biggest drop since the final three months of 2008.

An index of executive and consumer sentiment in the 17-nation euro area dropped to 89.9 from a revised 90.5 in May, the European Commission in Brussels said today. That’s the lowest since October 2009. In Germany, the number of people out of work rose a seasonally adjusted 7,000 to 2.88 million, a separate report showed. Economists in a Bloomberg News survey had forecast a gain of 3,000 in the month.

London-traded Brent, the second-worst performer between April and June in the Standard & Poor’s GSCI commodity index, is set to recover as an EU ban on Iranian oil takes effect, central banks act to protect growth and on speculation that OPEC will curb some of its excess supply, according to analysts surveyed by Bloomberg News.

Front-month Brent is forecast to rebound to an average $114.50 a barrel in the third quarter, according to the median estimate of 32 analysts. BNP Paribas SA, Deutsche Bank AG and Barclays Plc predict $110, $115 and $121 a barrel, respectively.

‘Price Up-cycle’

Brent slipped as low as $88.49 last week. The decline took prices below the marginal cost of production, which was $92 a barrel in 2011, according to Sanford C. Bernstein & Co. The drop “marks the start of the next oil price up-cycle,” Bernstein said in a report e-mailed today.

The EU ban on oil purchases from Iran, the second biggest exporter in the Organization of Petroleum Exporting Countries, starts on July 1 as part of pressure from Western nations to halt the Persian Gulf nation’s nuclear program. Saudi Arabia is OPEC’s biggest shipper of crude.

The European contract will outperform WTI crude as the embargo takes effect and Norway’s strike cuts supply, Mirae Asset Securities said in a report today. Investors should buy Brent and sell WTI futures, Mirae recommended.

Statoil ASA, Norway’s biggest energy company, estimates the industrial action by workers is curbing national oil output by as much as 250,000 barrels a day while the Oil Industry Association puts the daily loss at 240,000 barrels of crude plus 11.9 million standard cubic meters of natural gas. The country produced 1.63 million barrels of oil a day last month, according to the Norwegian Petroleum Directorate.

“The Norwegian strike was priced in yesterday,” Hewson at CMC Markets UK said. “The expectation is that there is significant oversupply in the market so the Norwegian strike is neither here nor there.”

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