Oil Trades Near $70 as European Debt Crisis May Slow Recovery

May 24 (Bloomberg) -- Crude oil was little changed near $70 a barrel in New York amid concern measures to reduce deficits in Europe may slow the global economy’s recovery from recession.

U.S. Treasury Secretary Timothy F. Geithner will tell his Chinese counterparts this week that Europe’s debt crisis should have only a small effect on the recovery, a U.S. official told reporters in Beijing. Oil prices below $65 would be harmful for Middle East producers, Saudi Basic Industries Corp. Chief Executive Officer Mohamed bin Hamad al-Mady said yesterday.

“There are still uncertainties regarding Europe and that has obviously been dominating markets,” said Toby Hassall, commodities analyst at CWA Global Markets Pty in Sydney. “The uncertainty is still very much there and it’s not looking like we’ll get a solution to Europe’s problems any time soon.”

Crude oil for July delivery traded at $70.23 a barrel, up 19 cents, in after-hours electronic trading on the New York Mercantile Exchange at 7:53 a.m. in Singapore.

The contract fell the past nine sessions, dropping 7.1 percent last week. June oil slumped as low as $64.24 on May 20, the lowest intraday price for the near-month contract since July 2009.

Oil prices are down 20 percent from a 19-month high of $87.15 reached on May 3. Futures touched a record $147.27 on July 11, 2008.

“Commodities were certainly a forward-looking market last year and we are starting to see a speed-bump,” CWA’s Hassall said. U.S. stockpiles also remain high, he said.

Asia, U.S. Recovery

Against that, Asian demand has been picking up, and there has been a “fairly encouraging” flow of data from the U.S., the world’s biggest energy consumer, he said.

“We were never really expecting a sharp recovery in the U.S. economy and we certainly haven’t got it. But having said that, there are signs that the U.S. economic recovery is becoming self-sustaining. In terms of oil demand, that is a positive.”

U.S. supplies of crude oil and all petroleum-based fuels increased to 1.81 billion barrels in the week ended May 14, the highest stockpiles on a seasonal basis in Energy Department data through 1990.

Hedge funds and other large speculators reduced their bets on rising oil prices to a three-month low last week, according to U.S. Commodity Futures Trading Commission data.

Speculative net-long positions, the difference between orders to buy and sell the commodity, dropped 25 percent in the week ended May 18, to 67,361 contracts on the New York Mercantile Exchange, the lowest since Feb. 12.

While some speculators may be buying back in to profit from the longer-term demand recovery, markets remain volatile and investors “don’t want to catch a falling knife,” Hassall said.

Brent crude oil for July settlement advanced 12 cents to $71.80 a barrel on the ICE Futures Europe exchange in London. It slipped 16 cents to $71.68 on May 21, the lowest settlement since Feb. 8.