Crude Oil Falls After Report Shows Surprise Decline in U.S. Retail Sales

Crude oil fell for the first time in four days after U.S. retail sales unexpectedly slipped in May, spurring concern that economic growth in the world’s biggest energy-consuming country will slow.

Oil tumbled 2.3 percent after the Commerce Department said that purchases declined 1.2 percent, the biggest drop since September. Retail sales were projected to increase, according to the median estimate of 76 economists surveyed by Bloomberg News.

“It’s all about the economy,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at MFC Global Investment Management in Boston. “Economic sentiment is going to remain the ultimate driver of this market for the foreseeable future.”

Crude oil for July delivery fell $1.70 to $73.78 a barrel on the New York Mercantile Exchange, the lowest settlement since June 8. The contract gained 3.2 percent this week and is up 1.5 percent from a year ago.

The retail sales number sent equities lower during the hours crude oil was trading. The Standard & Poor’s 500 Index fell 0.3 percent to 1,083.80, and the Dow Jones Industrial Average slipped 31.97 points, or 0.3 percent, to 10,140.56.

“Economic uncertainty is pushing all the markets, especially crude oil,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People are worried about the possibility of a double-dip recession and what the impact of that would be on commodity demand.”

Companies added 41,000 workers to payrolls in May, the fewest in four months and down from a 218,000 increase in April, the Labor Department reported last week.

Consumer Confidence

“Any concerns about the economy are going to have a major impact on oil,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The strength of the market has been built on expectations of an economic rebound.”

U.K. manufacturing weakened in April for the first time in three months, a signal the economic recovery may be struggling to keep momentum. Factory output fell 0.4 percent from March, the Office for National Statistics said today in London. Economists predicted a 0.5 percent increase, according to the median of 25 forecasts in a Bloomberg News survey.

Oil extended declines as the euro fell against the dollar, reducing the appeal of commodities as an alternative investment. The 16-nation currency weakened to $1.208 down 0.4 percent from $1.2124 yesterday. The euro touched $1.1877 on June 7, the lowest level since March 2006.

Brent Oil

Brent oil for July delivery declined 94 cents, or 1.3 percent, to settle at $74.35 a barrel on the London-based ICE Futures Europe exchange. The contract gained as much as 0.6 percent earlier today after a report showed that Chinese refiners processed a record quantity of oil last month.

China, the second-biggest energy-consuming country, refined 35.8 million metric tons last month, or 8.5 million barrels a day, 15 percent more than a year earlier, according to China Mainland Marketing Research Co., which compiles the figures for the government. China yesterday reported its May exports climbed the most in six years.

BP Plc’s damaged well in the Gulf of Mexico has been leaking twice as much oil as previously estimated, a team of government scientists said in its latest report on the size of the worst spill in U.S. history.

The well is gushing 20,000 to 40,000 barrels of oil a day, according to an estimate released yesterday by the scientists, tasked by the government with calculating the flow. On May 27, the group pegged the rate at 12,000 to 19,000 barrels.

Six-Month Moratorium

President Barack Obama declared a six-month moratorium on deep-water drilling last month as a presidential panel probes the explosion and sinking of the BP-leased Deepwater Horizon rig, which killed 11 workers and resulted in the spill.

“The Gulf oil spill may result in reduced access to deepwater supplies both here and around the world,” Hodge said. “The long-term result may be higher prices.”

Fifteen of 36 analysts and traders in a Bloomberg News survey, or 42 percent, predicted oil in New York will rise through June 18. Nine respondents, or 25 percent, forecast futures will be little changed and 12, or 33 percent, said prices will fall. Last week, 43 percent of survey respondents said the market would gain.

Oil volume on the Nymex was 731,750 contracts as of 3:07 p.m. in New York. Volume totaled 812,586 contracts yesterday, 4.2 percent greater than the average of the past three months. Open interest was 1.34 million contracts.

The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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