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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.
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.
"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.