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Crude oil fell to the lowest level in almost five months amid growing speculation Greece may leave the euro currency union and as Saudi Arabia’s oil minister said prices should decline further.
Crude oil futures dropped as much as 2.6 percent after Greece failed to agree on a unity government and European Union officials considered its possible exit from the euro. Saudi Arabia wants crude prices lower than they are now, Oil Minister Ali al-Naimi said yesterday in Adelaide, Australia. The kingdom is pumping at its highest rate in almost three decades, OPEC data show.
“Greece is unable to form a coalition government and Europe is the biggest problem right now,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. “When the Saudis speak, the market tends to listen. They’ve been trying to talk down the market for a while.”
Crude oil futures for June delivery fell $1.43, or 1.5 percent, to $94.70 a barrel at 11:27 a.m. on the New York Mercantile Exchange after declining to $93.65, the lowest front-month intraday price since Dec. 19. Futures are down 14 percent from this year’s closing high of $109.77 on Feb. 24.
Brent for June settlement tumbled $1.16, or 1 percent, to $111.10 a barrel on the London-based ICE Futures Europe exchange.
“There is a total loss of confidence and the European situation is really weighing on the market,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “Saudi is definitely ramping up production and that could push down prices.”
Meetings brokered by Greek President Karolos Papoulias were set to continue today after Syriza, the leading anti-bailout party, rejected a unity government following inconclusive elections May 6. That moved the country closer to a new vote, with at least five European central bankers broaching the once- taboo topic of its exit from the euro.
Although Greece accounts for 2 percent of the euro-area’s economic output, its exit would fragment a system of monetary union designed to be irreversible and might cause investors to raise the threat of withdrawal by other states.
The euro dropped as much as 0.7 percent to $1.2825, the lowest level since Jan. 18. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.
The Standard & Poor’s 500 Index declined as much as 1.2 percent and the Dow Jones Industrial Average fell 1.2 percent.
“The weak euro and the Greek crisis are making people more bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The general sense is that the global economy is going to underperform because of the European crisis.”
Saudi Arabia, the world’s biggest crude exporter, pumped 10.1 million barrels a day in April, about 200,000 barrels more than the previous month and the highest level in more than three decades, a report by the Organization of Petroleum Exporting Countries showed May 10, citing official data submitted by the kingdom.
“We want a lower price than where it is now,” al-Naimi said yesterday. “We need to get the price to a level of around $100” a barrel for Brent, he said.
Brent last traded below $100 briefly in October.
Oil supply outweighs demand by 1.3 million to 1.5 million barrels a day, al-Naimi said yesterday.
West Texas Intermediate oil may decline to $90 a barrel, and Brent to $105 as European central banks struggle to resolve the debt turmoil, Sabine Schels, an analyst with Bank of America Corp. in London, said in a May 11 report e-mailed today.
Hedge funds cut bullish oil bets by the most in three years the week before the Seaway pipeline begins to ease a U.S. stockpile glut.
Money managers reduced net-long positions on oil, or wagers prices will rise, by 33 percent in the seven days ended May 8, according to the Commodity Futures Trading Commission’s Commitments of Traders report on May 11. It was the largest drop since the week ended April 21, 2009.
Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD) plan to reverse shipments on the 150,000-barrel-a-day Seaway line from Cushing, Oklahoma, to the U.S. Gulf Coast on about May 17, according to an April 13 filing with regulators.
- Moming Zhou in New York at Bloomberg.