Oil Ends Under $90 on Europe Worries

Oil futures on Wednesday ended lower for a third straight session, under $90 a barrel on renewed euro-zone concerns and as a surprise decrease in inventories failed to lift prices.

Losses mounted as the session progressed, and the news from the Energy Information Administration was not enough to counter the fears of diminished demand for oil amid turmoil in Europe and concerns that the latest round of monetary stimulus in the U.S. might not do enough for the U.S. economy.

Crude-oil futures for November delivery declined $1.39, or 1.5%, to settle at $89.98 a barrel on the New York Mercantile Exchange. That was oil’s lowest since Aug. 2.

The EIA reported a decrease in crude inventories by 2.4 million barrels for the week ended Sept. 21.

Analysts polled by Platts had expected an increase by 1.5 million barrels.

The EIA also reported gasoline inventories down 500,000 barrels, and stockpiles of distillates, which include heating oil, also down 500,000 barrels. The analysts surveyed by Platts had forecast gasoline supplies unchanged and distillates inventories up 1 million barrels.

Worries centered on demand, however. “Concerns that QE3 is not enough are starting to re-emerge,” said Gene McGillian, a broker and analyst at Tradition Energy in Connecticut.

Oil’s intraday rally past $100 a barrel only two weeks ago was predicated on a significant demand boost from the Federal Reserve action, and New York-traded oil saw a significant inflow of longs, or bets oil prices would go higher, on such hopes, he said.

Euro-zone woes

Many “long” investors unwound their positions as they faced more euro-zone woes and uncertainty.

Spain’s borrowing costs surged past 6% on Wednesday, a level considered unsustainable in the long run. The difficulties Spain faced on international bond markets came as a second night of protests against austerity measures rocked Madrid, and the region of Catalonia announced elections that could potentially lead to independence of the region, Spain’s economic cornerstone.

Greece also saw its share of troubles, with riot police returning to Athens’s streets to face protesters against a fresh round of budget cuts.

As for a fizzling of the QE3 boost, on Tuesday Fed official Charles Plosser criticized the central bank’s decision to launch the stimulus package.

Plosser, a known hawk, said the asset purchases are unlikely to boost economic growth and that “frictions and structural adjustments” holding back improvements in labor markets cannot be cured by monetary policy.

Greece was also in the limelight after European Central Bank executive board member Joerg Asmussen said the central bank will not take part in any potential debt restructuring there, “because this would constitute state financing, which is forbidden,” German daily Die Welt reported.

Gasoline, natural gas rise

Elsewhere in the energy complex, price action was mixed, with gasoline and natural gas ending higher, and heating oil holding on to losses.

Gasoline for October delivery climbed 11 cents, or 3.8%, to $3.08 a gallon, while heating oil for the same month fell less than 1 cent, or 0.1%, to $3.11 a gallon.

Gasoline ended at its highest since Aug. 31. Futures picked up after news of an explosion at a Canadian refinery owned by privately-held Irving Oil. In addition, gasoline futures prices have outperformed in recent sessions as North American refineries enter their maintenance season between the summer driving season and heating season.

Natural-gas futures for October delivery rose 10 cents, or 3.4%, to $3.02 per million British thermal units. That was the highest settlement for natural gas in nearly two weeks.

The contract expired at the end of floor trading on Wednesday, and the expiration gave natural gas extra legs. The EIA is expected to report on natural-gas inventories on Thursday.

Analysts surveyed by Platts expect an increase between 74 billion cubic feet and 78 bcf for the week ended Sept. 21. That would compare to a 104-bcf injection in the comparable week of 2011 and a five-year-average increase of 76 bcf.

Traders might be looking past the inventories report to focus on the coming heating season, said Tim Evans, an analyst with Citi Futures Perspective.

Source: Claudia Assis MarketWatch.com

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