Oil Set for Weekly Loss on Debt Crisis; Brent Falls to 2012 Low

Oil headed for a third weekly drop in New York after Germany’s finance minister said Europe’s crisis may last another two years and reports added to evidence of a slowdown in China. Brent fell to its lowest this year in London.

West Texas Intermediate futures were little changed, after losing as much as 1 percent. German Finance Minister Wolfgang Schaeuble said on France’s Europe 1 radio that “in 12 to 24 months we’ll see a calming of financial markets,” sending the euro to a four-month low against the dollar. Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD) reversed the Seaway pipeline to alleviate a glut in the U.S. Midwest. In China, home prices fell in a record number of cities last month and car dealers posted inventory levels that foreshadowed deeper price cuts.

“The market is facing strong headwinds from the stronger dollar and continuing concerns about the euro zone, such as a Greek exit, possible contagion, economic weakness and the possibility of further downgrades,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “Still, the underlying physical market is tighter than the price declines suggest.”

Crude for June delivery was at $92.40 a barrel, down 16 cents, in electronic trading on the New York Mercantile Exchange at 1:48 p.m. London time after falling as low as $91.60. The contract yesterday slipped 25 cents to $92.56, the lowest close since Nov. 2. Prices are 3.9 percent lower this week and down 6.5 percent this year.

Brent oil for July settlement dropped 28 cents, or 0.3 percent, to $107.21 a barrel on the London-based ICE Futures Europe exchange after falling to $106.40, the lowest intraday level this year. The premium of the European benchmark to WTI for the same month was at $14.46. Earlier it narrowed to $13.62 a barrel, the least in two weeks, after the Seaway pipeline reversal allowed oil to be diverted from its delivery point in Cushing, Oklahoma, to the Gulf Coast.

Technical Support

Brent may drop to $99 a barrel, in line with low points reached in August and September, after breaking through support provided by a long-term trend-line, according to Stephanie Aymes, a technical analyst at Societe Generale SA in London.

Prices of new homes in China fell from a year earlier in 46 of the 70 cities tracked by the National Bureau of Statistics, the agency said today. Dealerships for Honda Motor Co., Chery Automobile Co., BYD Co. and Geely Automobile Holdings Ltd. (175) had more than 45 days of inventory at the end of last month, according to an official from the government-backed China Automobile Dealers Association.

Euro Breakup Scenario

Greece’s credit rating was downgraded one level by Fitch Ratings on concern that the country won’t be able to muster the political support needed to sustain its membership in the euro area. Nine Spanish lenders were cut three notches and seven were kept on review for further reductions, Moody’s Investors Service said yesterday in a statement, citing a recession and mounting loan losses.

A “disorderly” breakup of the euro region could send Brent as low as $60 a barrel, “due to the resulting sharp European recession and negative global economic consequences,” according to Bank of America Corp. The price may rebound to $120 if Greece successfully renegotiates its bailout package, the bank said in a report dated yesterday.

The Federal Reserve Bank of Philadelphia’s general economic index slid to minus 5.8 this month, the lowest reading since September, from 8.5 in the previous month. The decline was the first in eight months. Economists forecast the gauge would rise to 10, according to a Bloomberg News survey.

Supply Buildup

Brent’s premium to WTI narrowed as the reversal of the 500- mile (880-kilometer) Seaway pipeline was completed. Enbridge and Enterprise said yesterday they plan to start moving oil from Cushing, Oklahoma, to Houston-area refineries this weekend.

The startup may ease a glut at Cushing, the delivery point for WTI, where inventories rose 1 million barrels last week to a record 45.1 million, according to Energy Department data. The line 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.

New York oil is still poised to decline next week as the reversal of Seaway may not be enough to alleviate the buildup of supplies in the central U.S., according to a Bloomberg News survey. Nineteen of 34 analysts, or 56 percent, forecast prices will drop through May 25. Nine respondents predicted futures will rise and six estimated they will be little changed.

“The commentary out there still suggests we’ve got a bearish tone,” said Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity-markets newsletter in Sydney. “Everyone is still concerned about what’s happening in Europe and that adds to the demand destruction. It’s still mixed data from the U.S., there’s nothing clean coming out.”

Bloomberg