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Oil Falls Near Eight-Week Low in N.Y. on Greek Default Threat
By Margot Habiby – Oct 3, 2011

Oil fluctuated after the Institute for Supply Management reported an index of U.S. manufacturing unexpectedly increased in September and on concern that Greece will default on debt payments.

Futures tumbled as much as 3 percent before paring losses as the manufacturing report signaled growth in the world’s largest economy may spur fuel demand. European finance ministers met today in Luxembourg to determine whether Greece has done enough to mitigate the default threat.

“We found some stable ground after the ISM numbers and after that we’ve been floating up higher,” said Carl Larry, director of energy derivatives and research with Blue Ocean LLC in New York. “This is the first week of the month, and we usually see new money come in. Especially since we’re under $80, it looks like a good bargain.”

Crude for November delivery decreased 35 cents, or 0.4 percent, to $78.85 a barrel at 12:30 p.m. on the New York Mercantile Exchange. Prices settled at $79.20 a barrel on Sept. 30, the lowest level since Sept. 29, 2010. Futures have fallen 14 percent this year.

Brent oil for November settlement slid 52 cents, or 0.5 percent, to $102.24 a barrel on the London-based ICE Futures Europe exchange after falling as low as $100.71. A close below $101.32 would represent a decline of more than 20 percent from the April 8 settlement price of $126.65 a barrel, meeting the common definition of a bear market.

U.S. Economy

The ISM’S U.S. factory index rose to 51.6 in September from 50.6 the prior month. The Tempe, Arizona-based group’s index was forecast to slip to 50.5 based on the median estimate in a Bloomberg survey of economists. A reading of 50 is the dividing line between an expansion and a contraction in manufacturing.

Construction spending in the U.S. also unexpectedly rebounded in August, propelled by the biggest jump in state and local government outlays in more than two years. The 1.4 percent gain reversed the revised 1.4 percent drop in July, Commerce Department figures showed today in Washington.

“Investors in general are very concerned about the economic outlook in both the U.S. and in Europe, with the sovereign debt crisis,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington said on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “The combination of both of these things has been pretty deadly to GDP forecasts.”

The Greek government said today it passed a new budget backed by its international creditors, including larger deficits than previously forecast, as the country moves closer to securing an 8 billion-euro ($10.7 billion) aid payout needed to avoid default.
Greek Measures

Prime Minister George Papandreou’s Cabinet also passed 6.6 billion euros of austerity measures yesterday to cut the 2012 deficit to 6.8 percent of gross domestic product, missing the 6.5 percent goal previously set with the European Union, International Monetary Fund and European Central Bank, known as the troika. Finance Minister Evangelos Venizelos previously said Greece would miss the targets.

“The worries about Greece and Europe continue to put pressure on oil prices,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The markets are still worried about demand and how what’s going on in Europe is going to affect demand. U.S. data has been a little bit more optimistic.”

New York oil futures may test technical support at around $74 a barrel and $64 a barrel, levels that correspond with the 50 and 62 percent retracement levels on a Fibonacci study from oil’s lows in January 2009, said Stephen Schork, president of Schork Group Inc., an energy advisory company in Villanova, Pennsylvania.
Commodities Fall

“We’re in a well-defined bearish trend in all commodities, especially crude oil and natural gas, and we’re gunning for a sub-$75 level,” he said.

The Standard & Poor’s GSCI Index of 24 commodities slipped 0.2 percent to 589.89. Earlier, it touched 580.22, the lowest intraday level since Dec. 1.

Oil also fell as the euro dropped to an eight-month low against the dollar, curbing commodities’ appeal an alternative investment to the U.S. currency. The euro fell 0.9 percent to $1.3261 at 12:31 p.m. in New York. Earlier, it touched $1.3238, its lowest level since Jan. 13.

Hedge funds cut bullish bets on oil by the most in seven weeks on concern that economic growth will falter. The funds and other large speculators reduced wagers on rising prices by 7.4 percent in the week ended Sept. 27, according to the Commodity Futures Trading Commission’s Commitments of Traders report released Sept. 30. It was the largest decline since Aug. 9.

Oil volume in electronic trading on the Nymex was 444,521 contracts as of 12:32 p.m. in New York. Volume totaled 694,856 contracts Sept. 30, 5.7 percent above the average of the past three months. Open interest was 1.41 million contracts, the highest level since Sept. 15.

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