Monday, June 27, 2011

Oil Drops on Slowing Economies, Prospect of Another IEA Release

By Margot Habiby

(Bloomberg) -- Oil fell amid concern that economic expansion in the U.S. and China is slowing and after the International Energy Agency said it’s prepared to release additional crude from stockpiles.

Crude dropped as much as 1.5 percent in New York and Brent decreased as much as 2.7 percent in London after a U.S. report showed consumer spending stagnated last month and a Chinese preliminary purchasing managers’ index indicated factory output may rise at the slowest pace in 11 months in June. The IEA said it will decide in 30 days whether to tap additional stockpiles.

“The market’s been struggling because of economic concerns both in the U.S. and globally,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc in New York. “When these strategic reserves come to the market, they’re going to compete directly with Brent crude, which is the market that led us up and is leading us back down again.”

Crude for August delivery fell $1.07, or 1.2 percent, to $90.09 a barrel at 9:19 a.m. on the New York Mercantile Exchange. Earlier, futures touched $89.82 a barrel. Futures have tumbled 16 percent so far in the second quarter.

Brent oil for August delivery decreased $1.03, or 1 percent, to $104.09 a barrel on the ICE Futures Europe exchange in London after touching $102.28.

The IEA, which announced June 23 that members would jointly tap strategic reserve for the third time in the organization’s history, will act again if needed, Nobuo Tanaka, the agency’s executive director, said on June 25.

IEA Action

“If necessary we’ll continue,” he said in Beijing. Previous releases responded to the first Persian Gulf War in 1991 and Hurricane Katrina in 2005.

New York futures dropped the most in six weeks on June 23, dipping below $90 a barrel for the first time since February. The U.S. will provide 30 million barrels of the IEA release, European members will contribute about 20 million and Asian nations about 10 million barrels.

In Europe, Greek lawmakers will vote on a five-year austerity plan. Failure to pass the plan may lead to the euro area’s first sovereign default.

“The market dropped below $90 once again on fears about the economy and the Greek issues,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Just below $90 is pretty strong support, so it’s trying to hold last week’s lows.”

--With assistance from Rachel Graham in London and Robert Tuttle in Doha. Editors: Dan Stets, Richard Stubbe

To contact the reporter on this story: Margot Habiby in Dallas at

To contact the editor responsible for this story: Dan Stets at

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