US oil settles down $1.64, or 2.75%, at $58.00 a barrel

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Crude prices tumbled about 3 percent for a second day on Thursday ahead of an OPEC decision likely to keep the market oversupplied and on worry rising European bond yields could tighten the availability of speculative money that had been invested in oil.

U.S. crude futures closed down $1.64, or 2.75 percent, at $58.00 a barrel—a one-week low. Brent for July was down $1.80, or 2.8 percent, at $62.80 a barrel.

The Organization of the Petroleum Exporting Countries, meeting in Vienna, is expected to affirm on Friday an output target of 30 million barrels per day, ignoring calls from some producers to cut supply and support prices. OPEC actually produces about 2 mill lion bpd above the target.

Ten-year German Bund yields, the benchmark for European borrowing costs, hit eight-month highs after recording their biggest two-day gains since 1998. The spread between those yields and the equivalent U.S. Treasury yields narrowed to its tightest in four months.

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"Today's play in oil is as much about macro and bonds as it is about crude and OPEC," said John Kilduff, partner at New York energy hedge fund, Again Capital.

"The spiking Bund yields could lead to a tighter credit environment in Europe that could ostensibly choke off growth and the hot money that is the lifeblood of speculators, including those in the oil market," Kilduff said.

Is OPEC's oil strategy paying off?

Phil Flynn, analyst at the Price Futures Group in Chicago, concurred with that view.

"There is certainly a 'lack of conviction' trade going on in oil now, with OPEC expected to keep production unchanged or even hike it to match what it is really overproducing," Flynn said. "The European macro front is another drag on the market."

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Saudi Arabia, OPEC's most influential member, on Thursday raised its official selling price for benchmark Arab Light crude to Asia in July, responding to robust demand for its crude there and to higher consumption at home during the hot summer months.

"There are pockets of strength in Asia," said Seth Kleinman, head of energy research at Citigroup in London. "Light sweet crude in the Atlantic basin is very weak, but Middle Eastern sour grades are stronger."