Oil Falls as Surprise Increase in U.S. Jobless Claims Dims Demand Outlook

Crude oil fell to a six-week low as rising U.S. jobless claims and a contraction in manufacturing in the Philadelphia area bolstered concern that the economic rebound in the world’s biggest oil-consuming country is slowing.

Oil declined 1.3 percent after the Labor Department said initial jobless claims rose to the highest level since November. The Federal Reserve Bank of Philadelphia’s general economic index dropped to the lowest reading since July 2009. Total U.S. petroleum inventories are at the highest level in at least 20 years, according to the Energy Department.

“The negative employment picture, along with collective record petroleum inventories, will continue to put pressure on energy markets,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The negative Philadelphia index number adds to concerns about the strength of the economy.”

Crude oil for September delivery fell 99 cents to $74.43 a barrel on the New York Mercantile Exchange, the lowest settlement price since July 7. Futures are up 2.8 percent from a year ago.

Brent crude oil for October settlement slipped $1.17, or 1.5 percent, to end the session at $75.30 a barrel on the ICE Futures Europe Exchange in London.

Initial jobless claims rose by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed. Claims exceeded all estimates of economists surveyed and compared with the median forecast of 478,000.

Roller-Coaster Ride

“Oil is tracking some other markets because we are all looking at the same economic indicators,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The market has been a roller-coaster ride, given that what oil does each day depends on economic headlines. Employment is one indicator that’s shown no positive signs.”

The Federal Reserve Bank of Philadelphia’s general economic index fell to minus 7.7 this month. Negative readings signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. Economists forecast the measure would rise to 7, according to the median of 58 projections in a Bloomberg News survey.

The Standard & Poor’s 500 Index declined 1.7 percent to 1,075.59 at 4:02 p.m. in New York, and the Dow Jones Industrial Average dropped 1.4 percent to 10,270.98. The dollar climbed to $1.2819 per euro, up 0.3 percent from yesterday, reducing the appeal of commodities as an investment.

“You were smacked by back-to-back negative reports this morning,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “The market is tanking on the economic headlines, which come after yesterday’s bearish DOE report. Supplies are at the highest level in a generation.”

Total Petroleum Inventories

A U.S. Energy Department report yesterday showed that total petroleum stockpiles climbed 5.34 million barrels to 1.13 billion in the week ended Aug. 13, the highest level since at least 1990. The department began to compile weekly inventories in 1990, said Jonathan Cogan, an Energy Information Administration spokesman in Washington.

Stockpiles of distillate fuel, a category that includes heading oil and diesel, rose 1.07 million barrels to 174.2 million last week, the highest level since 1983, according to yesterday’s report. The increase left supplies 27 percent above the five-year average for the period, the department said.

Supplies of crude oil fell 818,000 barrels to 354.2 million barrels, leaving inventories 8.2 percent higher than the five- year average for the week. Gasoline stockpiles dropped 39,000 barrels to 223.3 million, 10 percent higher than the average for the period.

Fuel Consumption

Total U.S. fuel demand over the past four weeks rose 0.4 percent to 19.6 million barrels a day, according to the department. Gasoline consumption climbed 6,000 barrels a day to 9.45 million over the period, the highest level since August 2008, the report showed.

“Demand has been fairly good when you look at the level of employment,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The gasoline number is quite strong.”

The Organization of Petroleum Exporting Countries will reduce shipments this month as demand drops at Chinese refineries, which are performing maintenance, according to tanker-tracker Oil Movements. OPEC will ship 23.24 million barrels a day in the four weeks to Sept. 4, down 1 percent from the month ended Aug. 7, the Halifax, England-based consultant said today. The data exclude Ecuador and Angola.

“It’s entirely eastbound flows that account for this decline,” Roy Mason, founder of Oil Movements, said by phone from Halifax, England. “There’s heavy maintenance this month in China, which will affect deliveries. From here onward it’s going to be downhill in the tanker market for sure.”

Oil volume on the Nymex was 525,427 contracts as of 3:07 p.m. in New York. Volume totaled 790,116 contracts yesterday, 24 percent above the average of the past three months. Open interest was 1.27 million contracts.

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

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