Oil falls on euro drop to two-year low, signs of slowing economy

July 12 (Bloomberg) -- Oil declined as the euro slumped to a two-year low, reducing investor appetite for raw materials, and on signals that the global economic recovery is faltering.

Futures dropped as much as 1.9 percent after the common currency depreciated to the lowest level since June 2010 against the dollar. World stock markets fell as South Korea lowered interest rates for the first time in more than three years and Australian payrolls were cut. The International Energy Agency forecast “muted” growth in oil demand in 2013.

“The falling euro is the primary reason for oil’s drop today,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “A weaker currency is probably the only tool the Europeans can use in the short term to boost growth. The dollar is looking like the prettiest dog in an ugly-dog contest and that’s not good for oil.”

Crude oil for August delivery declined $1.40, or 1.6 percent, to $84.41 a barrel at 10:16 a.m. on the New York Mercantile Exchange. Prices have decreased 15 percent this year.

Brent oil for August settlement fell $1.11, or 1.1 percent, to $99.12 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract traded at a premium of $14.71 to New York-traded West Texas Intermediate.

The euro dropped as much as 0.6 percent to $1.2167 today, the lowest level since June 30, 2010. The Standard & Poor’s GSCI Index of 24 commodities decreased 0.9 percent. Nineteen of the raw materials on the index were lower.

Australia Payrolls

Australian employers unexpectedly cut payrolls in June, and the jobless rate rose for a second month, to 5.2 percent from 5.1 percent, data from the statistics bureau in Sydney showed. South Korea reduced its benchmark seven-day repurchase rate by a quarter of a percentage point, highlighting concern that exports are threatened by Europe’s failure to resolve its debt crisis.

U.S. consumer confidence stagnated last week. The Bloomberg Consumer Comfort Index held at minus 37.5 in the week ended July 8. Some 86 percent of those surveyed said the economy was in bad shape, 21 percentage points higher than the average since 1985.

The Standard & Poor’s 500 Index declined 1.1 percent and the Dow Jones Industrial Average decreased 0.8 percent.

Oil consumption will increase by a “relatively muted” 1 million barrels a day, or 1.1 percent, to an average of 90.9 million in 2013, the Paris-based IEA said today in its first outlook for the coming year. Demand in emerging economies will surpass that of developed nations for the first time in 2013, the IEA forecasts.

Bloomberg News

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