Oil Declines Below $80 for a Third Day on Euro-Zone Debt

Oil fell below $80 a barrel for a third day on concern that a meeting of European Union leaders this week will fail to check the region’s debt crisis, leading to a reduction in fuel demand.

Futures dropped as much as 2 percent as George Soros warned that a failure by EU leaders to produce drastic measures could spell the demise of the bloc’s shared currency. Crude climbed earlier as oil and gas installations in the Gulf of Mexico were shut because of Tropical Storm Debby. Prices slid as the storm moved toward Florida and away from energy fields.

“The market is hanging on every development out of the euro zone,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “Things don’t look promising for the summit. Nothing appears to be in the cards that will end the crisis and an ultimate breakdown looks likely.”

Oil for August delivery declined $1.37, or 1.7 percent, to $78.39 a barrel at 11:20 a.m. on the New York Mercantile Exchange. Futures are down 21 percent this year. Prices have fallen 24 percent since the end of March, heading for the biggest quarterly decline since the final three months of 2008.

Brent oil for August settlement slid $1.12, or 1.2 percent, to $89.86 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate, the grade traded in New York, was at $11.47, up from $11.22 on June 22.

EU Summit

Policy makers should create a European Fiscal Authority to purchase sovereign debt in return for Italy and Spain implementing achievable budget cuts, Soros said in an interview in London yesterday. The billionaire investor said German Chancellor Angela Merkel is worsening Europe’s crisis because countries need growth, not the austerity she has called for.

The EU begins a two-day meeting June 28 in Brussels. Leaders will attend pre-summit gatherings as they work to narrow differences on solutions to the debt crisis.

The euro touched $1.2471, the lowest level against the dollar since June 12. A weaker euro and stronger dollar curb commodities’ appeal as an alternate investment. The Standard & Poor’s 500 Index (SPX) declined 1.6 percent and the Dow Jones Industrial Average decreased 1.2 percent at 11:22 a.m.

“The main driver of this market remains concern about the European crisis and what that may mean for oil demand,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The tropical storm gave us a boost earlier but is now moving in the wrong direction.”

Debby’s Direction

Oil gave up earlier gains after Tropical Storm Debby shifted away from offshore energy installations. Debby was in the Gulf of Mexico, about 90 miles (145 kilometers) south- southwest of Apalachicola, Florida, with top winds of 50 miles per hour, the National Hurricane Center said in an advisory shortly before 8 a.m. New York time.

Futures climbed 2 percent on June 22 as the developing storm prompted the evacuation of platforms in the region and as equities gained.

“The storm premium is quickly coming out of the market,” Kilduff said.

Norwegian offshore workers shut two production platforms after talks on pensions and wages failed, curtailing output in Europe’s second-largest oil and gas producer after Russia.

The strike will cut oil and gas output at Statoil ASA (STL)’s Oseberg and Heidrun fields, and close BP’s Skarv development, the Norwegian Oil Industry Association said yesterday.

Norwegian Strike

The walkout by oil-platform workers, which is the first industrywide action since 2004, targets about 165,000 barrels of oil equivalent a day, according to the Industry Energy and Lederne unions.

Hedge funds reduced bullish oil bets to a 19-month low in the seven days ended June 19, according to the Commodity Futures Trading Commission’s Commitments of Traders report on June 22. Money managers, including funds, commodity pools and commodity trading advisers, cut wagers for a seventh week, paring futures and options combined by 5.9 percent to 122,815, the lowest level since Oct. 1, 2010.

Bloomberg