Oil Drops a Third Day on European Debt Crisis; Gulf Storms Ease c.2011 Bloomberg News

Sept. 12 (Bloomberg) -- Oil fell for a third day in New York, the longest losing streak in a month, as investors bet that Europe’s debt crisis will limit economic growth. Production resumed in the Gulf of Mexico as the threat of storms eased.

West Texas Intermediate crude slid as much as 2.6 percent as the euro dropped to its lowest level since 2001 against the yen on speculation that a Greek default will trigger a banking crisis in Europe. Nate, a storm over eastern Mexico, weakened as it moved further inland, the U.S. National Hurricane Center said. The oversupply of oil may disappear as the market absorbs the release of stockpiles, Goldman Sachs Group said.

“The debt crisis in Europe is leading to fear about economic growth,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna and the fifth most-accurate forecast of Brent prices in the eight quarters to June. “If sentiment in the equity markets remains bad, it will be tough for oil to move higher.”

Crude for October delivery fell as much as $2.24 to $85 a barrel in electronic trading on the New York Mercantile Exchange and was at $85.43 at 9:12 a.m. London time. The contract slipped $1.81 to $87.24 on Sept. 9. Prices are 11 percent higher than a year ago.

Brent oil for October settlement decreased $1.87, or 1.7 percent, to $110.90 a barrel on the London-based ICE Futures Europe Exchange. The European benchmark contract was at a premium of $25.47 to U.S. futures, compared with the record close of $26.87 on Sept. 6.

Bullish Bets

About 6.2 percent of oil production and 4 percent of natural gas output from the Gulf of Mexico are still shut after Lee battered the area, a Bureau of Ocean Energy Management, a Regulation and Enforcement report showed Sept. 9. Nate, downgraded to a post-tropical cyclone, was about 75 miles (120 kilometers) southwest of Tuxpan, Mexico, the U.S. National Hurricane Center said in an advisory before 10 p.m. Mexico City time yesterday.

Hedge funds cut bullish bets on oil last week while increasing those on gasoline. The funds and other large speculators reduced wagers that prices will rise, with the number of futures and options combined falling by 5,780, or 3.6 percent, to 155,837, according to the Commodity Futures Trading Commission’s Commitments of Traders report. Bets motor fuel will rally increased by 13 percent, the data showed.

“The idea that European and U.S. economic growth is going to be weak over the next year seems like a reasonable forecast,” said John Vautrain, a senior vice president at Purvin & Gertz Inc. in Singapore. “WTI will stay enormously depressed, $10 to $20 a barrel or more below Brent.”

Strategic Release

Oil markets are likely to tighten over the remainder of the year and into 2012 as the market absorbs additional supplies from the release of strategic stockpiles in the U.S., Goldman Sachs Group said in a research note e-mailed today.

The U.S. government released crude from the Strategic Petroleum Reserve as part of a 30.64 million-barrel sale to companies in cooperation with the Paris-based International Energy Agency. The IEA sought to counter lost Libyan output from the conflict between rebels and the regime of Muammar Qaddafi.

The euro fell to its lowest level since 2001 against the yen and slid versus the dollar. Speculation that German Chancellor Angela Merkel is preparing for a Greek default curbed demand for the shared currency, limiting investor demand for dollar-denominated oil futures as a hedge.

“Oil is highly leveraged to global growth prospects,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty Ltd. in Sydney. “Any negative sentiment around global growth does tend to weigh on the oil price, and that’s one of the reasons we’ve seen West Texas come off so heavily.”

--With assistance from Ann Koh in Singapore. Editors: John Buckley, Raj Rajendran

To contact the reporter on this story: Ben Sharples in Melbourne at bsharplesbloomberg.net Grant Smith in London at gsmith52bloomberg.net

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