Oil Drops Most in a Month as European Debt Turmoil Intensifies

Oil plunged the most in a month in New York amid renewed concern that Europe is failing to resolve its sovereign debt crisis.

Futures for September delivery tumbled as much as 4.2 percent as the euro dropped to an 11-year low against the yen and the cost of insuring Spanish debt surged to a record. International creditors meet in Athens tomorrow as concern grows that Greece may not meet its bailout targets. Spain’s stock-market regulator banned trades to “constitute or increase net short positions on shares.”

“The continuing saga of the euro, and in particular the travails of Spain and fears that this will soon be played out in France and Italy, is driving today’s sell-off,” said Christopher Bellew, senior broker at Jefferies Bache Ltd. in London, who predicts further price losses may be limited.

Crude for September delivery fell as much as $3.82 to $88.01 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.24 at 1:46 p.m. London time. Today’s 4.2 percent drop is its biggest intraday loss since June 21. Prices are 11 percent lower this year.

Brent oil for September settlement on the London-based ICE Futures Europe exchange dropped as much as $4.41, or 4.1 percent, to $102.42 a barrel. The European benchmark crude was at a $14.60 premium to New York-traded West Texas Intermediate grade. The spread was $15 on July 20, the widest in four days.

China Slowdown

A so-called technical “inside day” signals oil’s rally in New York over the past two weeks may be stalling, according to data compiled by Bloomberg. Futures on July 20 traded within the previous day’s price range, creating the candlestick formation. Sell orders may be clustered around chart resistance along the upper Bollinger Band, at about $92.27 a barrel today.

Economic growth in China, the world’s second-largest crude consumer, may slow to 7.4 percent this quarter, according to Song Guoqing, an academic member of the People’s Bank of China monetary policy committee. Gross domestic product expanded 7.6 percent in the three months ended June, the sixth quarterly deceleration and the weakest pace in more than three years. Song made the comments at a forum in Beijing on July 21.

The European Commission, the European Central Bank and the International Monetary Fund will meet to determine the fiscal position of Greece, which has been struggling to hold to obligations tied to 240 billion euros ($291 billion) of rescue funds over the past two years.

Consumer Confidence

The IMF, which indicated in March it won’t commit more money to Greece, will make a decision on its next disbursement in late August at the earliest based on the findings, two fund officials familiar with the situation said in recent days.

Consumer confidence in the euro area this month probably fell to the lowest since February, a Bloomberg News survey showed before the release of data today. The European Union consumed 16 percent of the world’s oil last year, according to BP Plc’s annual Statistical Review of World Energy. The U.S. accounted for 21 percent and China for 11 percent.

The euro slid as much as 1.3 percent to 94.24 versus the yen, the least since November 2000.

“The Spanish or European story will result in repeated volatility in the market,” Jarmo Kotilaine, the chief economist at National Commercial Bank in Jeddah, said by phone yesterday. “We are still not clear on what the policy options will be. Demand-erosion concerns keep coming back.”

Iraq resumed oil exports to Turkey after an explosion shut a pipeline that carries as much as 350,000 barrels a day, Sumaria News reported July 21, citing an unidentified Iraqi official.

The Kurdistan Workers’ Party, or PKK, claimed responsibility for the Iraqi explosion, Sumaria News said. The July 20 blast damaged one of two pipelines that transport oil from Kirkuk in northern Iraq to the Turkish port of Ceyhan, the Associated Press reported. Both pipelines were closed, AP said.

Hedge funds increased net-long wagers on West Texas Intermediate crude, the New York benchmark, by 4 percent in the seven days ended July 17 to 133,165 contracts, according to the U.S. Commodity Futures Trading Commission’s weekly report on July 20.

In London, hedge funds and other money managers bolstered bullish bets on Brent crude by 18,678 contracts, or 31 percent, in the week ended July 17, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 78,682 lots, the London-based exchange said today in its weekly Commitment of Traders report. That compares with net-longs of 60,004 contracts a week earlier.

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