Oil Falls to Four-Month Low on European Votes, U.S. Jobs

By Ben Sharples 

Oil fell to the lowest level in more than four months after European elections stoked speculation austerity efforts will be derailed and weaker-than-expected jobs data underscored concern the U.S. economy may falter.
Futures slumped as much as 3.2 percent to the lowest intraday price since December 20, extending a 4 percent drop on May 4 after U.S. payrolls rose by the least in six months. Euro- region services and manufacturing output contracted in April, a purchasing managers index showed. Crude also slid after France elected Socialist Francois Hollande as president and Greek voters flocked to anti-bailout parties.
“It’s a confluence of factors dragging oil markets lower,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “Weaker-than-expected jobless numbers and weak services PMI clearly rattled markets as did the Greek and French election results.”
Crude for June delivery plunged as much as $3.15 to $95.34 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.56 at 12:41 p.m. Sydney time. The contract decreased $4.05 to $98.49 on May 4, the lowest close since February 7. Prices slipped 6.1 percent last week, the biggest weekly drop since September.
Brent oil for June settlement slumped $1.26, or 1.1 percent, to $111.92 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.36, from $14.69 on May 4.

Technical Support

The 14-day relative strength index for oil in New York is at 30.04, the lowest since Aug. 9. A reading below 30 signals prices have fallen too far and further losses may not be sustained. Crude has technical support along its 200-day moving average, around $96.31 a barrel today, according to data compiled by Bloomberg. Buy orders tend to be clustered near chart-support levels.
Hollande got about 52 percent of votes in France against about 48 percent for Nicolas Sarkozy, according to estimates by four pollsters. Hollande’s platform calls for policies German Chancellor Angela Merkel opposes, including higher taxes, increased spending and a delayed deficit-reduction effort.
Greece’s poll casts doubt on whether the two main parties can put together a government strong enough to implement spending cuts to ensure the flow of bailout funds. Official projections predicted the two parties that partnered to secure a second rescue package for Greece, Pasok and New Democracy, would fall one short of the 151 seats needed to win a majority.

‘Bearish for Oil’

U.S. payrolls rose 115,000 in April, Labor Department data showed. The median estimate in a Bloomberg News survey called for a 160,000 advance. Unemployment fell to a three-year low of 8.1 percent as people left the labor force.
A euro-area composite index based on a survey of purchasing managers in services and manufacturing dropped to 46.7 from 49.1 in March, London-based Markit Economics said May 4. That’s the fastest rate of decline since October. A reading below 50 indicates contraction.
The euro declined to the lowest level in three months today. That makes oil, denominated in U.S. dollars, more expensive for investors holding the European currency.
A Hollande win is “bearish for the euro and that would be bearish for oil,” Glen Ward, the Dubai-based business development manager at online commodities trading platform provider ICM Capital, said in a phone interview yesterday. “The economy is still seen to be struggling. It’ll be hard to find people coming in to buy at this point.”
Hedge funds raised net-long positions, or wagers that prices will rise, by 12 percent in the seven days ended May 1, according to the Commodity Futures Trading Commission’s Commitments of Traders report on May 4. It was the largest increase since the week ended Feb. 14. Prices in New York have since dropped 9 percent.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net