Mark Shenk of Bloomberg News quotes Breitling Oil and Gas CEO Chris Faulkner as we see oil drop a third day as German industrial output declined, signaling that growth in Europe’s largest economy may have stalled, and as concern eased that Iran will block crude shipments from the Persian Gulf.
Oil Drops for Third Day as German Production Slips, Iran Threat Eases
By Mark Shenk – Jan 9, 2012 10:12 AM CT
Oil dropped a third day as German industrial output declined, signaling that growth in Europe’s largest economy may have stalled, and as concern eased that Iran will block crude shipments from the Persian Gulf.
Futures fell as much as 1.4 percent after German production (GRIPIMOM) fell 0.6 percent in November, the Economy Ministry in Berlin said today. Oil climbed to a seven-month high as manufacturing in the U.S. improved. The probability of Iran closing the Strait of Hormuz is low, Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. (GS), said in London today.
“The European economy doesn’t look good and that’s going to hurt oil demand,” said Kyle Cooper, director of research with IAF Advisors in Houston. “Although the U.S. economy is performing better, petroleum demand isn’t looking good.”
Oil for February delivery fell $1.28, or 1.3 percent, to $100.28 a barrel at 11:10 a.m. on the New York Mercantile Exchange. The price fell as low as $100.10. Futures are up 14 percent from a year earlier.
Brent oil for February settlement decreased $1.13, or 1 percent, to $111.93 a barrel on the London-based ICE Futures Europe exchange.
German manufacturing was projected to slip 0.5 percent, according to the median of 30 estimates in a Bloomberg News survey (GRIPIMOM). In the year, production rose 3.6 percent when adjusted for working days.
German Chancellor Angela Merkel and French President Nicolas Sarkozy outlined the increased pace of their response to the financial crisis. Merkel and Sarkozy said euro-area leaders may complete their new budget rulebook by Jan. 30, one month ahead of schedule, and are considering accelerating capital contributions to the bailout fund being set up this year.
The situation regarding Iran is bearish for the price of crude oil, Goldman’s Currie said. Europe will turn to Saudi Arabia to replace supplies from Iran, whose exports will go to China, where demand is quite strong, Currie said at a conference in London today.
“Geopolitics have trumped market fundamentals lately,” said Rick Mueller, a principal with ESAI Energy LLC in Wakefield, Massachusetts. “Prices will fall a great deal when the Iran situation calms down.”
A halt of shipping through the strait could send the price of Brent as high as $200 a barrel for a limited period, according to Societe Generale SA. (GLE)
A pipeline that would allow oil from the United Arab Emirates to bypass the Strait of Hormuz has been delayed by construction difficulties, two people with knowledge of the matter said. Abu Dhabi, holder of most of the U.A.E.’s crude reserves, had planned to start exports in January 2011 through the pipeline to a port outside the strait, Dieter Blauberg, the project’s former director, said in May 2009.
“It’s unfortunate that the pipeline that would allow Abu Dhabi oil to avoid the pipeline has been delayed,” said Chris Faulkner, president of Breitling Oil & Gas in Irving, Texas, an independent producer focused on North America. “If there were a move by Iran to close the strait the move would be significant. Prices would climb $20 to $30 in 15 minutes.”
Hedge funds increased bullish positions on oil by 4.1 percent in the week ended Jan. 3, according to the Commodity Futures Trading Commission’s Commitments of Traders report. Open interest advanced 3.5 percent, rising for a second week after falling in December to the lowest since May 2007, according to the CFTC.