INTERNATIONAL. Oil fell to the lowest level in more than four months after European election results fed speculation that austerity efforts will be derailed and weaker-than-expected jobs data underscored concern the U.S. economy may falter.
Futures pared losses after slumping as much as 3.2% to the lowest intraday price since December 20. The euro declined to a three-month low after France elected Socialist Francois Hollande as president and Greek voters backed anti-bailout parties. Crude extended a 4% drop on May 4 after U.S. payrolls rose by the least in six months.
“Elections in France and Greece brought euro-zone fears back to the fore,” Nam Truong, a dealer at London Capital Group Holdings Plc, told Bloomberg in an e-mailed note. Investors are concerned that European austerity measures will weaken and additional stimulus will be needed to “prop up ailing euro-zone economies,” he said.
Crude for June delivery plunged as much as US$3.15 to US$95.34 a barrel in electronic trading on the New York Mercantile Exchange and was at US$97.81 at 1:15 p.m. London time. The contract tumbled US$4.05 to US$98.49 on May 4, the lowest close since February 7. Prices slumped 6.1% last week, the biggest weekly drop since September.
Brent oil for June settlement narrowed earlier losses to fall 23 cents, or 0.2%, to US$112.95 on the London-based ICE Futures Europe exchange. Trading volumes dropped amid a U.K. public holiday. The European benchmark contract’s premium to West Texas Intermediate was at US$15.14, up from US$14.69 on May 4.
“It’s a confluence of factors dragging oil markets lower,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “Weaker-than-expected jobless numbers and weak services PMI clearly rattled markets, as did the Greek and French election results.”
Hollande’s platform calls for policies German Chancellor Angela Merkel opposes, including higher taxes, increased spending and delayed deficit reduction.
“It remains to be seen whether higher fiscal spending will translate into the hoped-for economic growth and subsequently into higher oil demand,” analysts at researcher JBC Energy GmbH in Vienna said in a note.
Greece’s poll casts doubt on whether that country’s two main parties can form a government strong enough to implement spending cuts to ensure the flow of bailout funds. Official projections predicted the two parties that partnered to secure a second rescue package for Greece, Pasok and New Democracy, would fall one short of the 151 seats needed to win a majority.
A euro-area composite index based on a survey of purchasing managers in services and manufacturing dropped to 46.7 from 49.1 in March, London-based Markit Economics said May 4. That’s the fastest rate of decline since October. A reading below 50 indicates contraction.
The euro declined to the lowest level in three months today. That makes oil, denominated in U.S. dollars, more expensive for investors holding the European currency.
A Hollande win would be “bearish for the euro and that would be bearish for oil,” Glen Ward, the Dubai-based business development manager at online commodities trading platform provider ICM Capital, told Bloomberg in a phone interview yesterday. “The economy is still seen to be struggling. It’ll be hard to find people coming in to buy at this point.”
Crude may fall further on “lackluster” macroeconomic conditions and bearish fundamentals, said Hussein Allidina, head of commodities research at Morgan Stanley, in a research note dated yesterday. If OPEC production continues unchanged, global oil inventories will rise to levels that are “above normal” in the third quarter, and crude supply this year will average 813,000 barrels a day more than demand, he said.
Members of the Organization of Petroleum Exporting Countries are currently producing 32.3 million barrels a day, the group’s Secretary-General Abdalla el-Badri told reporters in Paris on May 3. That exceeds the 30 million barrels a day OPEC agreed to pump at its last ministerial meeting.
“We maintain that the path of least resistance for oil is lower, particularly with bearish catalysts continuing to emerge,” Allidina said in the report.
In the U.S., payrolls rose 115,000 in April, Labor Department data showed. The median estimate in a Bloomberg News survey called for a 160,000 advance. Unemployment fell to a three-year low of 8.1% as people left the labor force.
Hedge funds raised net-long positions, or wagers that prices will rise, by 12% in the seven days ended May 1, according to the Commodity Futures Trading Commission’s Commitments of Traders report on May 4. It was the largest increase since the week ended February 14.
Money managers and hedge funds increased bullish bets on ICE Brent crude by 13,165 contracts in the week ended May 1, according to data from ICE Futures Europe.
Long positions, or speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 127,081 lots, the London-based exchange said today in its weekly Commitment of Traders report.