Oil dropped for the fifth time in six days as discord over the handling of Europe’s debt crisis and a decline in German business sentiment renewed concern that the European crisis will reduce oil demand.
Prices fell 1 percent after German Chancellor Angela Merkel and French President Francois Hollande disagreed at a meeting Sept. 22 on a timetable to introduce joint oversight of Europe’s banks. German business confidence unexpectedly fell to the lowest level in more than two years, helping push the euro down against the dollar.
“The news out of Europe is not good and the dollar is stronger, and the combination is putting pressure on oil demand expectations,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s making people think that even $90 for oil is a little too high.”
Oil for November delivery declined 96 cents to settle at $91.93 a barrel on the New York Mercantile Exchange, down 7.1 percent since Sept. 14 and 7 percent for the year.
Brent oil for November settlement decreased $1.61, or 1.4 percent, to end at $109.81 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate narrowed for the first time in three days, falling to $17.88.
In speeches marking Franco-German reconciliation after World War II, Merkel rejected Hollande’s appeal to activate oversight of the banking union as soon as possible. Deadlock over regulation may delay a key building block in resolving the single currency’s debt crisis.
German Finance Minister Wolfgang Schaeuble led criticism of the euro region’s rush toward common bank oversight at a meeting of European Union finance ministers in Cyprus this month. Germany has raised doubts about plans backed by France, Spain and Italy to hand the European Central Bank oversight powers over all banks in the euro area, and to do so by Jan. 1.
“Nothing has really changed in Europe,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “There is still the fundamental problem of how to solve the crisis.”
Oil demand in Organization of Economic Cooperation and Development countries will fall by 0.7 percent this year to 46.2 million barrels a day, led by a 2.6 percent drop in Europe “due to sluggish economic growth,” the International Energy Agency said on Sept. 12.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped for a fifth straight month to 101.4 in September from 102.3 in August. That’s the lowest reading since February 2010. Economists predicted an increase to 102.5, according to a Bloomberg survey.
The euro fell as much as 0.7 percent to $1.2891. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.
“This is further liquidation of assets,” said Bill Baruch, senior market strategist at Iitrader.com in Chicago. “We are heading into the weaker demand season and momentum is kind of on the downside.”
Demand for gasoline slid to a two-month low of 8.63 million barrels a day in the week ended Sept. 14, the Energy Department reported last week.
Oil also fell as a survey modeled on the U.S. Federal Reserve’s Beige Book showed China’s manufacturers and retailers are less optimistic about sales than they were three months ago,
The China Beige Book, through interviews of more than 2,000 company executives and bankers from Aug. 9 to Sept. 3, found limits to monetary easing after interest-rate cuts in June and July, according to a summary from CBB International LLC, the New York-based researcher that conducted the survey.
The country is the world’s second-largest oil consumer. The U.S. is first.
“We’re focused on the demand side of the market and the worries about China and Europe,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.
Electronic trading volume on the Nymex was 324,205 contracts as of 3:25 p.m. Volume totaled 421,200 contracts on Sept. 21, 22 percent below the three-month average. Open interest was 1.56 million.