Crude Oil Falls as Dollar Strengthens, Economic Outlook Remains a Concern
Aug. 30 (Bloomberg) -- Costanza Jacazio, an analyst at Barclays Capital, talks about the outlook for oil prices. She speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)
Crude oil fell for the first time in four days as slower-than-forecast growth in personal incomes in July heightened concern the economy is struggling to recover.
Oil fell from the highest level in more than a week after the Commerce Department reported that incomes rose 0.2 percent, less than the 0.3 percent median estimate of 66 economists surveyed by Bloomberg News. The dollar climbed against the euro, curbing the appeal of commodities as an alternative investment.
“You do have a lot of evidence that the economy is just stalling,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “Policy makers are all making a brave face and saying we’ve got plenty of tools available, but I’m starting to think they’re running out of tricks.”
Oil for October delivery fell 47 cents, or 0.6 percent, to settle at $74.70 a barrel on the New York Mercantile Exchange. Futures have tumbled 5.4 percent this month, the first decline since May. Prices have risen 2.7 percent in the past year.
The dollar gained 0.8 percent against the euro, the most since Aug. 20. The U.S. currency traded at $1.2667 per euro at 3:16 p.m. in New York, compared with $1.2763 on Aug. 27.
The Standard & Poor’s 500 Index fell 1.1 percent to 1,053.13, and the Dow Jones Industrial Average lost 102.86 points, or 1 percent, to 10,047.79.
U.S. Economy
The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less than previously estimated, according to revised figures from the Commerce Department released Aug. 27.
Federal Reserve Chairman Ben S. Bernanke pledged last week that the Fed “will do all that it can” to ensure economic growth. He outlined steps that policy makers on the Federal Open Market Committee might take to combat slowing expansion in an Aug. 27 speech in Jackson Hole, Wyoming.
Oil prices rose 2.3 percent last week, the biggest increase since the period ended July 23.
“We could see prices move lower here, especially with all the data coming out that shouldn’t be particularly bullish,” said Matt Smith, a commodities analyst for Summit Energy in Louisville, Kentucky.
Economic reports due this week include the S&P/Case-Shiller home-price index and the Conference Board’s confidence index tomorrow and the Institute for Supply Management’s manufacturing data Sept. 1.
A government report Sept. 3 will likely show nonfarm payrolls fell by 100,000 in August, according to the median forecast of economists surveyed by Bloomberg. The jobless rate climbed to 9.6 percent from 9.5 percent, it may show.
‘Massive Increase’
“The drop is a reaction to oil’s massive increase last week, as U.S. economic data remains weak,” said Eugen Weinberg, head of commodity research at Commerzbank AG in Frankfurt.
Petroleum supplies were at the highest level in records going back 20 years in the week ended Aug. 20, the Energy Department reported last week.
Overall petroleum stockpiles, a combination of oil and fuel supplies, climbed 8.92 million barrels, or 0.8 percent, to 1.14 billion. Total products supplied, a measure of demand, fell 1.2 percent in the period to 19.4 million barrels a day.
Oil inventories probably rose 1.5 million barrels last week from 358.3 million in the week ended Aug. 20, according to the median estimate of 11 analysts surveyed by Bloomberg News before the government report this week.
OPEC oil output fell to a seven-month low in August, a Bloomberg News survey showed. Iraq led the drop because of a pipeline hobbled by a bombing. Production slipped 75,000 barrels, or 0.3 percent, to average 29.15 million barrels a day. Output by members with quotas, all except Iraq, declined 5,000 barrels to 26.805 million, 1.96 million above their target.
Brent Oil
Brent crude for October settlement fell 5 cents to $76.60 a barrel on the ICE Futures Europe Exchange in London. Most offices in the U.K. are closed today for a bank holiday.
Brent cost $1.90 a barrel more than New York futures, the strongest premium since May 20. The spread widened amid concern U.S. fuel demand may weaken as the peak summer gasoline consumption period ends and on expectations of higher European fuel demand.
Oil also fell as Hurricane Earl was forecast to bypass the Gulf of Mexico, the main U.S. oil-producing region. Earl, which strengthened to a major hurricane today, was 140 miles (230 kilometers) east-northeast of San Juan, Puerto Rico, just before 1 p.m. Miami time, according to the U.S. National Hurricane Center. It’s forecast to move parallel to the U.S. East Coast.
Oil volume in electronic trading on the Nymex was 495,674 contracts as of 3:18 p.m. in New York. Volume totaled 978,936 contracts Aug. 27, 58 percent above the average of the past three months and the highest level since May 19. 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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