Crude Trades Near 1-Week Low on Worsening European Crisis

Oil erased gains in New York to trade near its lowest in a week amid concern that Europe’s debt crisis is deepening and will cut demand for fuels.

West Texas Intermediate pared an earlier advance of as much as 0.9 percent. The euro fell for a fifth day against the yen after Moody’s Investors Service cut its ratings outlook on Germany yesterday amid speculation that Europe’s turmoil will engulf Spain and Italy. Oil rose earlier after Chinese manufacturing data signaled the world’s second-largest crude user may be pulling out of an economic slowdown.

“Europe continues to be no closer to a solution, but politicians seem content to keep applying short-term fixes rather than address the underlying problems,” said Guy Wolf, a strategist at Marex Spectron Group Ltd., a London-based broker. “Crude markets are caught between a deteriorating demand picture and tightening supply fundamentals.”

Oil for September delivery was at $87.98 a barrel, 16 cents lower in electronic trading on the New York Mercantile Exchange, at 1:22 p.m. London time. The contract dropped $3.69 to $88.14 yesterday, the lowest since July 13. Prices are down 11 percent this year.

Ichimoku Chart

Brent crude for September settlement slipped 32 cents to $102.94 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate was at $14.96, compared with $15.12 yesterday.

Oil in New York has technical support at $86.59 a barrel, along the lower of two so-called leading span lines that define an “ichimoku cloud” on the daily chart, according to data compiled by Bloomberg. The cloud is an area where buy orders tend to be clustered. Last week’s price rise stalled near the upper boundary, signaling chart resistance.

China’s state-run Cnooc Ltd. yesterday agreed to pay $15.1 billion in cash to acquire Nexen Inc. in the biggest overseas takeover by a Chinese company. Nexen is the operator and 43 percent owner of the Buzzard field, the biggest contributor to the Forties blend of North Sea crude. Forties is one of four grades that make up Dated Brent, the benchmark grade used to price more than half of the world’s oil.

The Nexen purchase may help to speed up the construction of an oil export pipeline that would ease a supply glut in North America and boost the price of benchmark U.S. futures, according to Commerzbank AG.

Tackling Oversupply

A pipeline to the Pacific “would remove the oversupply on the North American market, which is responsible for WTI’s current price discount as compared to Brent,” Carsten Fritsch and Eugen Weinberg, analysts based in Frankfurt, wrote today in a report.

China’s manufacturing may contract at a slower pace in July after two interest-rate cuts and a rebound in lending. A preliminary reading for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics was at 49.5. If confirmed, that would be the highest since February. The final number in June was 48.2.

A U.S. government report tomorrow may show inventories fell for a fifth week, the longest stretch in a year.

Crude stockpiles probably fell 1.5 million barrels and gasoline inventories declined 500,000 barrels, according to the median estimate of seven analysts in a Bloomberg News survey before the Energy Department report. U.S. refinery utilization probably fell 0.5 percentage point last week after dropping 0.7 percentage point the prior week, the survey shows.

The American Petroleum Institute will release separate inventory data today. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

“If the crude-inventory data comes in like the survey results, that would be supportive,” said Victor Shum, the managing director of IHS Consulting in Singapore. “The primary factor driving some buying now is the Chinese manufacturing data.”

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