Crude Drops Below $72 as Equities Decline Amid Concern Recovery Is Slowing
Oil dropped to its lowest level in 11 weeks as sales of previously owned U.S. homes fell more than forecast in July, boosting speculation that economic growth is slowing and curbing fuel demand.
Futures declined 2 percent as U.S. stocks plummeted after the National Association of Realtors reported purchases of existing homes tumbled 27.2 percent to a 3.83 million annual rate. U.S. crude supplies rose last week amid a 20-year high in petroleum stockpiles, according to estimates of analysts surveyed by Bloomberg News.
“We’re getting all the classic signals that the economy is slowing down,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis.
Crude for October delivery fell $1.47 to settle at $71.63 a barrel on the New York Mercantile Exchange, the lowest level since June 7. Oil has lost 13 percent since Aug. 3 and has decreased 3.7 percent in the past year.
Prices declined from the settlement as equities extended losses after oil closed. The American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles decreased 1.85 million barrels to 356.8 million. October oil fell to $71.50 a barrel in electronic trading at 4:38 p.m.
Home sales were forecast to decline 13.4 percent to a 4.65 million rate, according to a Bloomberg News survey. The July figure was lower than all 74 responding economists estimated.
Equities, Growth
The Standard & Poor’s 500 Index fell 1.5 percent to 1,051.87, and the Dow Jones Industrial Average lost 1.3 percent to 10,040.45.
U.S. gross domestic product growth probably slowed to a 1.4 percent annual pace in the second quarter, down from an estimate of 2.4 percent last month, based on the median forecast of 79 economists surveyed by Bloomberg News before a Commerce Department report Aug. 27.
Oil demand typically declines in the third quarter at the end of the U.S. summer driving season, the peak gasoline consumption period. Many refiners schedule maintenance on their plants at that time.
U.S. retail gasoline demand fell 1.2 percent in the week ended Aug. 20, MasterCard Inc. reported today. Motorists bought an average 9.46 million barrels a day of the fuel, down from 9.57 million the week before, according to the company’s SpendingPulse report.
“The market continues to slip on worries about demand,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The market is oversupplied, especially with gasoline.”
Gasoline Supply
Gasoline inventories fell 0.2 percent last week, based on the median estimate from 17 analysts surveyed by Bloomberg News before an Energy Department report tomorrow.
Supplies of the motor fuel probably declined 450,000 barrels from 223.3 million in the prior week, when they were 10 percent above the five-year average, according to the Energy Department. The API report showed that gasoline stockpiles gained 692,000 barrels, or 0.3 percent, to 226.2 million.
Gasoline for September delivery fell 3.16 cents, or 1.7 percent, to settle at $1.8494 a gallon, the lowest closing price since Dec. 15.
“There’s way too much product inventory, and the economy is looking scarier by the day,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People are hearing the train coming.”
Oil Inventories
Stockpiles of oil and fuels climbed 5.3 million barrels to 1.13 billion in the week ended Aug. 13, the highest level since at least 1990, when the Energy Department began to collect weekly data. On a monthly basis, supplies are at the highest level since November 1983.
U.S. oil supplies probably increased 300,000 barrels last week from 354.2 million in the prior week, according to the Bloomberg poll.
“The market is extremely weak fundamentally and without a strong euro or a strong stock market, it just doesn’t have anything else to peg its hopes on,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut.
The euro was little changed at $1.267 at 4:25 p.m. in New York. Before the housing report, it touched $1.2588, the lowest level since July 13. A weaker euro curbs the investment appeal of dollar-based commodities such as crude oil.
Saudi Aramco, Saudi Arabia’s state oil and gas producer, said crude prices may end the year as high as $82 a barrel because of demand from China and India.
Saudi Forecast
“The prospect is good,” Mohamed Daoudi, head of research and technology at Aramco Overseas Co. BV, said yesterday in an interview in Stavanger, Norway. “There will be a need for more oil. You see India and China and the needs that are required because the developments there are huge. Most of Saudi Aramco’s exports go to that region.”
Brent crude for October delivery lost $1.24, or 1.7 percent, to $72.38 a barrel on the London-based ICE Futures Europe Exchange.
Oil volume in electronic trading on the Nymex was 549,657 contracts as of 4:25 p.m. in New York. Volume totaled 415,365 contracts yesterday, 32 percent below the average of the past three months and a four-week low. Open interest was 1.24 million contracts.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
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