Oil declined for a second day in New York on speculation that the global recovery may stall and crimp fuel consumption.
Crude oil slipped from near its highest level in 11 weeks as European equity indexes declined. The U.S. economy probably expanded at a slower pace in the second quarter as the trade deficit swelled, economists said before reports this week.
“We are bumping up against resistance again around $78,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “It’s going to take better macroeconomic news or perhaps storm activity in the Gulf of Mexico to spring prices from their narrow trading range.”
Oil for September delivery dropped as much as 90 cents, or 1.1 percent, to $78.08 a barrel in electronic trading on the New York Mercantile Exchange. It was at $78.24 as of 1:44 p.m. London time. Brent crude for September settlement on ICE Futures Europe exchange was at $76.74 a barrel.
On July 22, the New York contract settled at $79.30 a barrel, the highest level since May 5. Futures have gained 14.3 percent in the past year.
The Stoxx Europe 600 Index fell 0.4 percent to 254.94 at 1:27 p.m., having previously increased as much as 0.5 percent.
Bank of America Merrill Lynch expects the correlation between crude oil and equity markets to weaken in the coming weeks, commodity strategist Sabine Schels said today at a press briefing in London.
The crude oil market will start to focus “much more on fundamentals and much more on what OPEC is doing,” she said, referring to the Organization for Petroleum Exporting Countries, which accounts for roughly 40 percent of global supply.
Contango to Flatten
OPEC’s 11 members bound by quotas reduced supply by 0.5 percent in June, according to data compiled by Bloomberg. That’s the biggest reduction since February 2009.
The so-called contango structure in the New York futures market is likely to flatten, Schels said. This means there would be less of a discount on contracts nearest to delivery relative to longer-term shipments.
“We expect continued flattening in the curve” in the next two or three months, potentially attracting investment in oil, Schels said. “We usually see flows tick up again as the curve flattens,” she said.
Tropical Storm Bonnie dissipated near the U.S. Gulf Coast at the weekend, sparing refineries and offshore production operations. BP Plc vessels returned to work in the area to permanently plug a damaged well, the source of the largest oil spill in U.S. history.
Hedge-fund managers and other large speculators increased their net-long position in New York crude futures to a three- week high, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 36,145 contracts in the week ended July 20, up 4.3 percent from a week earlier.