Oil fell for the first time in eight days on concern that European governments aren’t doing enough to contain the worsening debt crisis, raising speculation that demand will slip.
Prices dropped from a two-month high as Spain’s cost of borrowing rose to a record after euro-area finance ministers gave final approval to a bank bailout for the country. The dollar strengthened to the most in two years against the euro and U.S. equities slid for the first time in four days.
“The Europeans are trying to stem the crisis but the question remains: Have they done enough?” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Both equities and the dollar are sending negative signals right now. The rally was pretty overextended and people are taking money off the table.”
Crude for August delivery fell $1.22, or 1.3 percent, to settle at $91.44 a barrel on the New York Mercantile Exchange. Oil closed at the highest level since May 16 yesterday, capping a seven-day gain that’s the longest since Feb. 24. Prices are down 7.5 percent this year. They rose 5 percent this week.
August futures expired at the close of floor trading. The more-active September contract dropped $1.14, or 1.2 percent, to $91.83 a barrel.
Brent oil for September settlement retreated 97 cents, or 0.9 percent, to end the session at $106.83 a barrel on the London-based ICE Futures Europe exchange.
“Oil markets don’t move in a straight line,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “People have seen sharp increases in prices and they are more liable to take profits.”
The euro-area finance ministers approved a bailout plan for Spain of as much as 100 billion euros ($122 billion). Today’s decision, made on a conference call, paves the way for a first payment from Europe’s temporary rescue fund, the European Financial Stability Facility.
Yields of Spain’s 10-year bonds increased to 7.28 percent. The euro fell as much as 1.1 percent against the dollar to the weakest level since June 2010. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.
The Standard & Poor’s 500 Index fell as much as 1 percent and the S&P’s GSCI Index of 24 commodities slid as much as 1.3 percent.
Spain Budget Minister Cristobal Montoro said the recession will extend into next year. Gross domestic product will fall 0.5 percent in 2013 instead of rising 0.2 percent as the government predicted April 27, he said after the Cabinet met in Madrid.
Britain had a bigger budget deficit than economists forecast in June, adding to doubt that Chancellor of the Exchequer George Osborne can meet his full-year fiscal goals.
“Oil is down because the euro is weaker, there is concern about Spain, and the British deficit widened,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “This is a reminder that oil demand might be weak.”
Crude also slid as Chinese leaders pledged to clamp down on property speculation. The country, the world’s second-biggest oil consuming country after the U.S., won’t relax property control policies and will instead seek to keep a “firm grip” on the real estate market, the official Xinhua News Agency said.
The Energy Department lowered its 2012 forecast for global oil demand on July 12 to 88.64 million barrels a day, up 0.8 percent from 2011 demand.
Gasoline consumption in the U.S. dropped in June for the first time since March and was down 2.5 percent from a year earlier as slower economic growth reduced demand, the American Petroleum Institute said today.
Deliveries of gasoline fell to 8.82 million barrels a day from 9.05 million in June 2011, the industry-funded group said. Total petroleum consumption decreased 3 percent to 18.7 million barrels a day.
Oil may drop next week in New York, a Bloomberg survey showed. Fourteen of 32 analysts, or 44 percent, forecast crude will decline through July 27. Twelve respondents, or 38 percent, predicted that futures will rise and six said there will be little change in prices.
Electronic trading volume on the Nymex was 424,263 contracts as of 3:46 p.m. in New York. Volume totaled 690,954 contracts yesterday, 24 percent above the three-month average. Open interest was 1.4 million.