Oil Falls to Six-Month Low on Europe Concern, U.S. Data
Oil fell to a six-month low as investors speculated Spanish banks may have their credit ratings lowered and an American gauge of manufacturing trailed projections, bolstering concern that economic growth will slow.
Futures retreated 0.3 percent after two people with knowledge of the situation said that Moody’s Investors Service will cut the Spanish ratings. The Federal Reserve Bank of Philadelphia’s general economic index shrank. Crude in New York rose earlier as Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD) prepared to reverse flows on the Seaway pipeline.
“We had soft economic data and European concerns weighing on equities and oil is being pulled along lower,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “Elevated concerns about the European story and disappointing U.S. economic data have been the story for two weeks now.”
Crude oil for June delivery fell 25 cents to $92.56 a barrel on the New York Mercantile Exchange, the lowest settlement since Nov. 2. Futures are down 6.3 percent this year.
Brent oil for July settlement slipped $2.26, or 2.1 percent, to end the session at $107.49 a barrel on the London- based ICE Futures Europe exchange, the lowest close since Dec. 30. Brent’s premium to the July West Texas Intermediate contract in New York narrowed to $14.55 a barrel.
Moody’s is set to downgrade the credit ratings of Spanish banks after 9 p.m. Madrid time, said the two people, who asked not to be identified because the decision hasn’t been announced. A Moody’s spokeswoman declined to comment in a phone interview.
U.S. consumer confidence dropped last week to the lowest level since the end of January. The Conference Board’s gauge of the outlook for the next three to six months decreased 0.1 percent in April after a 0.3 percent gain the prior month, the New York-based group said today. Economists projected the gauge would rise by 0.1 percent, according to the median of 49 estimates in a Bloomberg survey.
Prices also fell on concern that the European debt crisis will spread and the U.S. economy will slow. The ECB said it will temporarily stop lending to some Greek banks to limit its risk as President Mario Draghi signaled the central bank won’t compromise on key principles to keep Greece in the euro area.
Greece’s credit rating was downgraded one level by Fitch Ratings on “heightened risk” that the country will not be able to sustain its membership in the euro currency union after inconclusive elections left the country without a stable government. Greece was cut to CCC from B- by Fitch, according to an e-mailed statement today in London.
“Brent is taking a hit because the demand picture in the euro-zone is worsening as we get more negative news from Europe,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.
The European sovereign debt crisis that began in Greece and then moved to Ireland, Portugal, Italy and Spain has reduced economic growth and fuel consumption.
Enbridge and Enterprise completed modifications to reverse Seaway today, the companies said today. Increasing oil production in Canada and the U.S. Midwest and limited transportation out of Cushing, the delivery point for the New York contract, have bolstered supplies.
The 500-mile, 30-inch line is being commissioned and will initially be able to deliver 150,000 barrels per day, increasing to more than 400,000 in the first quarter of 2013, the companies said in the statement.
“You’re seeing a slight narrowing of the Brent-WTI spread because the opening of Seaway will relieve the glut at Cushing,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York.
The U.S. Energy Department reported yesterday that crude stockpiles climbed 2.13 million barrels to 381.6 million last week, the highest level since 1990. Supplies at Cushing increased 1 million barrels to 45.1 million in the week ended May 11, the highest level since the department began tracking inventories at the hub in 2004.
Electronic trading volume on the Nymex was 567,404 contracts as of 4:04 p.m. in New York. Volume totaled 664,792 contracts yesterday, 11 percent above the three-month average. Open interest was 1.54 million.
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