Oil Heads for Second Weekly Loss on Europe

Oil headed for a second weekly decline in New York as speculation that Europe's debt crisis threatens the global economy countered concern that violence in Saudi Arabia may destabilize the world's biggest crude exporter.

Futures are down 1.3 percent this week, after sliding 1.6 percent in the prior seven days. Portugal and Hungary's sovereign debt ratings were cut to junk, while Germany again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the crisis. Four people died in clashes this week between Shiite Muslims and Saudi security forces in the oil-rich Eastern Province. Oil prices may jump this winter, according to Mirae Asset Securities Ltd.

"If the euro zone problems persist and demand falls, prices are going to come down," said Ben Le Brun, a Sydney- based analyst with optionsXpress Inc., a broker. "That's very much weighing on sentiment, risk markets and volumes."

Crude for January delivery was at $96.18 a barrel in electronic trading on the New York Mercantile Exchange at 4:07 p.m. in Singapore. Prices are up 1 cent from the settlement on Nov. 23. Floor trading was closed yesterday for the U.S. Thanksgiving Day holiday and electronic trades will be booked with today's transactions for settlement purposes.

Brent oil for January settlement on the London-based ICE Futures Europe exchange was at $107.50 a barrel, down 28 cents. Prices are 0.1 percent lower this week and 13 percent higher in 2011. The European benchmark contract was at a premium of $11.32 to New York-traded West Texas Intermediate futures. The spread reached a record $27.88 on Oct. 14.

Brent Forecast

Brent may fall to $105 a barrel in the first quarter of 2012 and West Texas grade may decline to $92 on slowing global economic growth, Oversea-Chinese Banking Corp. said in a report yesterday.

Portugal's debt rating was cut to junk by Fitch Ratings yesterday and Hungary lost its investment grade at Moody's Investors Service today. Euro bonds are "not needed and not appropriate," German Chancellor Angela Merkel said at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg yesterday.

The European Union accounted for 16 percent of world oil demand in 2010, according to BP Plc's annual Statistical Review of World Energy. The U.S. consumed 19.1 million barrels a day, or 21 percent of the global total.

Saudi Arabia

Oil gained 0.7 percent in London yesterday after the Saudi Press Agency cited a Ministry of Interior statement saying two people were killed during an exchange of gunfire at the funeral of two others who died earlier this week in the al-Qatif region.

Saudi Arabia's Shiite minority is concentrated in the kingdom's eastern oil-producing hub, which lies across a 16-mile (26-kilometer) causeway from Shiite-majority Bahrain, where there were violent clashes in February and March as security forces crushed protests by Shiites demanding democracy and representative government.

Oil may rise this winter as France's call for a European embargo on crude supplies from Iran increases a geopolitical premium on prices, according to Gordon Kwan, head of energy research at Mirae in Hong Kong.

Iran "has a grip" over the Strait of Hormuz, through which about a third of seaborne oil cargoes from the Middle East passes, Kwan said in e-mailed comments today. The potential for military confrontation because of Iran's nuclear program will keep Brent about $10 to $15 a barrel higher than New York futures, he said.

"The oil market has been very complacent" about the risk in Iran, Kwan said. "Escalation of rhetoric towards Iran's nuclear program has supported oil prices in recent weeks, competing with the gloomy economic headlines as the main driver of oil prices."

Source: BLOOMBERG