Oil Falls a Second Day, Dropping From 26-Month High on Europe Debt Concern

Oil declined for a second day as concern Europe’s debt crisis is spreading drove speculation fuel demand will drop and an industry report showed U.S. gasoline supplies surged the most since January.

Futures extended yesterday’s 0.8 percent slide as traders secured profits from crude’s rally to $90.76 a barrel, the highest in 26 months. European ministers ruled out immediate aid for Portugal and Spain or an increase in the 750 billion-euro ($1 trillion) crisis fund. The American Petroleum Institute said gasoline stockpiles increased 4.8 million barrels last week.

“There are still concerns about the European economy,” said Ken Hasegawa, a commodity derivative sales manager at Newedge, a brokerage, in Tokyo. “This increase in products is having a larger impact on the crude oil market. Ninety dollars will be a major resistance level. It’s a good time to take profit.”

Crude for January delivery lost as much as 81 cents, or 0.9 percent, to $87.88 a barrel, in electronic trading on the New York Mercantile Exchange, and was at $87.98 at 9:52 a.m. in Singapore. Yesterday, it closed down 0.8 percent after rising to the highest since Oct. 8, 2008.

Europe’s economic situation is serious and its institutions must act more quickly to stem contagion from the sovereign debt crisis, International Monetary Fund Managing Director Dominique Strauss-Kahn told a briefing in Athens yesterday.

“The market continues to worry over Europe’s ability to prevent debt issues from spreading,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today. “Crude prices lost momentum, potentially as cautious long investors took profits due to uncertainty in the market.”

Brent crude for January settlement fell as much as 83 cents, or 0.9 percent, to $90.56 a barrel on the London-based ICE Futures Europe exchange. The contract dropped 6 cents to end the session at $91.39 yesterday.

Crude Supplies

Crude has risen 11 percent this year in New York, heading for its second consecutive annual increase. It soared 78 percent in 2009, the most since 1999.

U.S. crude stockpiles decreased 7.34 million barrels to 349.3 million last week, the American Petroleum Institute said. An Energy Department report today will probably show they slid 1.4 million barrels, according to the median of 16 analyst estimates in a Bloomberg News survey.

Supplies of distillates, which include heating oil and diesel, advanced 1.7 million barrels to 159.3 million, the API said. The Energy Department report will probably show they declined 900,000 barrels, according to the Bloomberg News survey, while gasoline inventories slipped 300,000 barrels.

“Investors will be closely watching U.S. oil inventory reports for evidence of improved demand,” Pervan said.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

OPEC Maintains

Oil’s rally is unlikely to coax OPEC into raising production quotas at this week’s meeting in Ecuador, as member nations consider the global recovery strong enough to withstand price gains.

The Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply, will maintain the limits set in 2008 when representatives gather in Quito on Dec. 11, according to all but one of 39 analysts and traders in a Bloomberg News survey. Ministers from Angola, Venezuela and Libya say the group will probably repeat its 24.845 million- barrel-a-day target.