Oil Heads for First Weekly Drop Since September on European Debt Concern

Oil headed for the first weekly decline since September in New York as signs Europe’s debt crisis is spreading countered speculation economic recovery in the U.S. will boost demand in the biggest crude consumer.

Futures were little changed, after slipping as much as 0.8 percent, and headed for the first weekly drop in seven weeks. Prices fell below $100 a barrel yesterday as European bond yields rose, signaling leaders are struggling to stem the crisis that threatens economic growth and demand for commodities. Claims for U.S. unemployment benefits decreased to the lowest level in seven months, the Labor Department said.

“Europe is clearly where eyes are focused for all markets at the moment,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty. in Sydney. “The potential for it to knock global growth prospects significantly is still there. We could see a pullback from these levels before heading higher again.”
Crude for December delivery declined as much as 81 cents to $98.01 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.91 at 1:35 p.m. Sydney time. The contract yesterday dropped $3.77, or 3.7 percent, to $98.82, the lowest settlement since Nov. 14. Prices are down 8 cents this week. The December contract expires today. The more-active January contract slid 5 cents to $98.88.

Brent oil for January settlement was at $108.17 a barrel, down 5 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to U.S. futures was at $9.26, compared with a record $27.88 on Oct. 14.

Debt Crisis

“Oil benchmarks plunged on fears of contagion from Europe’s debt crisis,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today. “Bearish sentiment in Europe outweighed solid U.S. data.”

New York crude may fall next week on heightened concern that Europe’s debt crisis is spreading and will hurt demand, according to a Bloomberg News survey. Eighteen of 36 analysts forecast oil will fall through Nov. 25. Eleven predicted a gain, and seven said there will be little change. Last week, 58 percent of those surveyed projected a drop.

Applications for jobless benefits decreased 5,000 in the week ended Nov. 12 to 388,000, Labor Department figures showed yesterday. Housing starts decreased 0.3 percent to a 628,000 annual rate in October, according to the Commerce Department. The median estimate of economists surveyed by Bloomberg News called for a drop to 610,000. Building permits, a proxy for future construction, jumped 10.9 percent. (Bloomberg)