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Crude Falls Below $77 After U.S. Supplies Increase, Economic Outlook Dims
Crude oil tumbled to a one-month low after applications for unemployment benefits rose, bolstering concern that slowing U.S. economic growth will curb fuel demand.
Oil decreased the most in six weeks as initial jobless claims rose by 2,000 to 484,000 last week, the highest level since February. Yesterday, a government report showed that U.S. gasoline supplies climbed for a seventh week and stockpiles of distillate fuel, a category that includes heating oil and diesel, advanced to the highest level since January 1983.
“The weekly jobless numbers were disastrous and sent the market lower,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The oil market is facing the reality, which is that supplies exceed demand. The only thing that was supporting prices was a false sense of economic security.”
Crude oil for September delivery dropped $2.28, or 2.9 percent, to $75.74 a barrel on the New York Mercantile Exchange, the lowest settlement since July 12. It was the biggest decline since July 1. Futures are up 8 percent from a year ago.
Brent crude oil for September settlement fell $2.12, or 2.7 percent, to end the session at $75.52 a barrel on the London- based ICE Futures Europe Exchange. It was the lowest close since July 21.
Oil in New York touched $82.97 on Aug. 4, the highest intraday price since May 4. Futures reached $87.15 on May 3, the highest level since Oct. 9, 2008.
“There was big push into the mid-$80s last week and we failed to take out the early-May highs,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “The market has been under pressure ever since the failure. There will be a lot of support in the mid-$70s.”
Technical Indicator
New York oil settled below its 200-day moving average for the first time since July 28, a technical indicator that prices will extend declines.
Oil has support at $71.09, its intraday low on July 6, said Tom Fitzpatrick, chief technical analyst at Citi FX, part of Citigroup Capital Markets in New York.
Economists forecast jobless claims would decline to 465,000, according to the median of 42 projections in a Bloomberg News survey. The government revised the prior week’s figure to 482,000 from a previously reported 479,000.
The Federal Reserve on Aug. 10 held its benchmark interest rate at a record low and announced it will reinvest principal payments on mortgage holdings into long-term Treasury securities in an effort to bolster economic growth.
Fuel Stockpiles
U.S. gasoline supplies rose 409,000 barrels to 223.4 million, according to an Energy Department report yesterday. The gain left stockpiles 8.6 percent higher than the five-year average for the week. Inventories of distillate fuel climbed 3.46 million barrels to 173.1 million, 27 percent higher than the average.
Crude oil supplies declined 2.99 million barrels to 355 million in the week ended Aug. 6, the report showed. Stockpiles were 8.1 percent higher than the five-year average.
“Inventories are weighing on the oil market because of the increasingly grim economic outlook,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We’re also going into a shoulder season when demand would drop anyway.”
U.S. gasoline consumption peaks during the summer, when Americans take vacations. The driving season lasts from the Memorial Day weekend in late May to the Labor Day holiday in early September. Refineries often shut units for maintenance in September and October as gasoline demand falls and before heating-oil use increases.
Fall Maintenance
“Demand peaks right now, and will soon drop,” Schork said. “There’s a seasonal decline in fuel use beginning in September and crude oil demand also drops as refineries go into fall turnarounds.”
The Organization of Petroleum Exporting Countries will reduce shipments this month as refineries close for maintenance, according to tanker-tracker Oil Movements. OPEC will ship 23.25 million barrels a day in the four weeks to Aug. 28, down 1.8 percent from the month ended July 31, the Halifax, England-based consultant said today. The data exclude Ecuador and Angola.
“There is a developing argument that Eastern demand isn’t particularly strong,” Roy Mason, Oil Movements founder, said today by phone from Halifax. “This is refiner demand, so the implication is that refiners feel they have got enough.”
Oil volume on the Nymex was 807,793 contracts as of 3:13 p.m. in New York. Volume totaled 809,661 contracts yesterday, the highest level since June 11 and 23 percent above the average of the past three months. Open interest was 1.28 million contracts, the highest level since June 17.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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