Oil fell near a five-month low after a second Greek election was called for as attempts to form a government failed, sending the euro tumbling.
Futures dropped 0.8 per cent as Pasok party leader Evangelos Venizelos said Greeks are headed back to the polls. The euro declined against the dollar after the announcement. A weaker European currency curbs the appeal of commodities as an investment. A government report tomorrow will probably show that US crude supplies climbed to the highest level since 1990.
“Concerns about Greece, and Europe as a whole, have led to risk aversion,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Prices are also lower because we're expecting another crude stock build tomorrow.”
Crude oil for June delivery decreased 80 cents to $US93.98 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 19. Prices are down 4.9 per cent this year.
Brent oil for June settlement gained 67 cents, or 0.6 per cent, to end the session at $US112.24 a barrel on the London- based ICE Futures Europe exchange. June futures expire tomorrow. The more-active July contract rose 45 cents, or 0.4 per cent, to close at $US111.45.
“Brent would be lower if not for the June expiration tomorrow,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “A lot of the length has already been liquidated because of the impending expiration.”
Length refers to wagers that prices will climb.
Second ballot
Greece has been without a government since an election on May 6, increasing concern the country will renege on pledges to cut spending as required by the terms of two bailouts negotiated since May 2010. That has spurred speculation it may ultimately leave the euro currency union.
German Finance Minister Wolfgang Schaeuble said Greece must elect a government that sticks to the terms of its international bailout in order to stay in the euro.
The euro dropped as much as 0.8 per cent to $US1.2722 against the US dollar, the lowest level since Jan. 17.
“The Greek elections sent the euro lower and caused oil to lose its gain,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “There's a direct correlation.”
The European sovereign debt crisis that began in Greece and then moved to Ireland, Portugal, Italy and Spain has reduced economic growth and fuel consumption.
US Inventories
An Energy Department report tomorrow will probably show that US crude-oil stockpiles advanced 1.75 million barrels to 381.3 million last week, according to the median of 12 analyst estimates in a Bloomberg survey. That would be the highest level since August 1990.
Analysts were split over whether stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, declined or increased, the survey showed.
“Prices are down because we're anticipating another build in crude supplies,” Evans said. “People are certainly aren't anticipating a shortage of crude anytime soon.”
Saudi Arabian Oil Minister Ali al-Naimi said May 13 that Brent oil should drop to $US100 a barrel because global supply is outstripping demand. The desert kingdom is the only member of the Organization of Petroleum Exporting Countries with significant surplus output capacity and has shown a readiness to use its reserves to help reduce prices.
Economic reports
Oil in New York advanced as much as 0.7 per cent in intraday trading after the Federal Reserve Bank of New York's general economic index increased in May. Confidence among US homebuilders jumped to a five-year high.
The New York Fed's general economic index increased to 17.1 this month from 6.6 in April. The median estimate in a Bloomberg survey of economists called for an increase to 9. The National Association of Home Builders/Wells Fargo index of builder confidence rose to 29, the highest level since May 2007, a report from the Washington-based group showed today.
Prices also increased after economic growth in Germany, Europe's largest economy, beat economists' projections. German gross domestic product rose 0.5 per cent in the first quarter, the Federal Statistic Office said in Wiesbaden today. Economists predicted a 0.1 per cent gain, according to the median of 40 estimates in a Bloomberg survey.
“We were up about 70 cents on the economic news and then the Greek headlines came out,” Schork said.
Electronic trading volume of crude oil on the Nymex was 519,794 contracts as of 3:45 p.m. in New York. Volume totaled 501,848 contracts yesterday, 16 per cent below the three-month average. Open interest was 1.54 million.