Oil Falls From Seven-Week High as Storm Skirts North Gulf Production Area
Crude oil fell from a seven-week high on speculation that crude-oil production in the Gulf of Mexico will be unaffected by a tropical storm in the region.
Prices also declined before reports this week that may show U.S. consumer confidence waned and manufacturing growth slowed this month. Futures are heading for a quarterly decline of 6.1 percent. Oil rose earlier today on forecasts that Tropical Storm Alex in the southwestern Gulf of Mexico will become a hurricane in the next 48 hours.
“Alex’s direction seems headed towards Mexico and not the north, where all the rigs and refineries are located,” said Hakan Kocayusufpasaoglu, chief investment officer at Archbridge Capital in Zug, Switzerland. “Though Mexico also has some production in the region, the real danger is off the coasts of the U.S., where production and refining are more concentrated.”
Oil for August delivery dropped as much as 84 cents, or 1.1 percent, to $78.02 a barrel on the New York Mercantile Exchange. It was at $78.32 at 12:45 p.m. London time. Brent crude for August delivery was at $77.37 a barrel on the London-based ICE Futures Europe exchange, down 75 cents.
Crude climbed as high as $79.38 a barrel in New York earlier today, the highest level since May 6. The commodity has gained 5.9 percent this month, narrowing its second-quarter loss to 6.5 percent and its year-to-date decline to 1.3 percent.
“At the moment, the crude market is not particularly tight,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “The market will be quite sensitive to economic data flow, particularly with respect to the strength of the U.S. economy. Markets are watching developments with the tropical depression Alex.”
G-20 Meeting
Group of 20 leaders endorsed targets to cut deficits and agreed to pursue higher capital requirements for banks once their economic recoveries take root, according to a statement released at a meeting in Toronto yesterday.
Advanced economies will aim to reduce deficits by at least half by 2013 and stabilize their debt-to-output ratios by 2016, the statement said. The G-20 also pledged to maintain existing stimulus plans and take “concerted actions” to sustain the recovery.
“The G-20 are trying to give some certainty to markets that fiscal issues will be dealt with,” said Moore at Commonwealth Bank of Australia. “But how those things are going to balance, I’m not entirely sure yet.”
Tropical Storm Alex
Alex has so far spared BP Plc as the company tries to contain and clean up the largest oil spill in U.S. history. The company expects to plug the gusher, which is spewing as much as 60,000 barrels a day of crude, by August.
Alex, packing maximum sustained winds of 45 miles (72 kilometers) per hour, was about 60 miles west-southwest of Campeche in Mexico and moving west-northwest at 7 mph, the hurricane center said in an advisory on its website posted at 10 p.m. Miami time yesterday. No coastal watches or warnings are in effect, it said.
The Atlantic hurricane season, which runs from June 1 through Nov. 30, is closely monitored by the energy and agriculture industries because of the potential impact of storms on production areas.
The Gulf is home to about 30 percent of U.S. oil and 12 percent of its natural gas production. It also has seven of the 10 busiest U.S. ports, according to the Army Corps of Engineers.
Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended June 22, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 39,635 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 6,705 contracts, or 20 percent, from a week earlier.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
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