Oil Drops, Caps Worst Month Since May, as Hurricane Earl Threatens Demand
Aug. 31 (Bloomberg) -- Hussein Allidina, head of commodities research at Morgan Stanley, discusses the outlook for crude oil, wheat and corn prices. Allidina talks with Scarlet Fu on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)
Oil tumbled, capping its worst month since May, on forecasts Hurricane Earl will pelt the U.S. East Coast, curbing fuel demand during the Labor Day holiday weekend.
Crude dropped the most in 12 weeks amid speculation that stormy weather will keep beachgoers and travelers at home. Labor Day is the traditional end of the U.S. summer driving season, the peak gasoline demand period. U.S. gasoline demand slid to a 12-week low last week, MasterCard Inc. reported today.
“It’s the last thing we need,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “It’s a big gasoline consumption weekend. Given how poor the gasoline demand has been, it will be a final parting blow for the summer driving season if people won’t hit the beach in droves.”
Oil for October delivery fell $2.78, or 3.7 percent, to settle at $71.92 a barrel on the New York Mercantile Exchange, the biggest drop since June 4. Prices tumbled 8.9 percent this month and have risen 2.8 percent in the past year.
Prices declined from the settlement as the industry-funded American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles jumped 4.77 million barrels to 361.5 million. October oil fell to $71.64 a barrel in electronic trading at 4:32 p.m.
Emergency agencies along the Eastern Seaboard are preparing for the arrival of Earl, which threatens to graze North Carolina and lash coastal Massachusetts with wind and rain before going ashore in Nova Scotia. Craig Fugate, administrator of the Federal Emergency Management Agency, said today that evacuations may be needed if the storm doesn’t turn north.
Earl Forecast
Earl was about 1,000 miles (1,605 kilometers) south- southeast of Cape Hatteras, North Carolina, and heading west- northwest at 14 mph, the U.S. National Hurricane Center said in an advisory at 5 p.m. Miami time. It was a Category 4 storm with winds of 135 miles an hour.
Tropical Storm Fiona trails Earl across the Atlantic Ocean. Both storms are forecast to miss the Gulf of Mexico, the top U.S. oil producing and refining region.
“It’s washing away the Labor Day holiday weekend for the entire East Coast,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Those fears were heightened after the MasterCard numbers came out.”
U.S. gasoline demand slid 3.1 percent in the seven days ended Aug. 27, MasterCard Inc. said today in its SpendingPulse report. Motorists bought an average 9.17 million barrels of fuel a day, down from 9.46 million the prior week. It was the lowest level since June 4.
Seasonal Weakness
“We have this hurricane coming, so it’s a safe assumption that demand for product could be lower,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “We’re going into a time of weak demand, and you do tend to see seasonal weakness in the oil market at the end of the third quarter.”
Gasoline for September delivery lost 4.47 cents, or 2.3 percent, to expire at $1.8894 a gallon on the Nymex. Prices fell 10 percent in August, the most since May. October gasoline fell 5.04 cents, or 2.6 percent, to $1.8574.
Oil also retreated after the Federal Reserve said some officials were concerned about a further slowdown in the economy yet signaled no plans to resume large-scale asset purchases at the Federal Open Market Committee meeting Aug. 10. The minutes were released today.
Business Barometer
The Institute for Supply Management-Chicago Inc.’s business barometer fell to 56.7 in August, the lowest level since November. Figures greater than 50 signal expansion.
U.S. oil supplies rose to a one-month high last week, according to a Bloomberg survey before an Energy Department report tomorrow. Inventories probably climbed 1.2 million barrels, or 0.3 percent, in the seven days ended Aug. 27 from 358.3 million a week earlier, according to the median of 16 analyst estimates. That would leave stockpiles at their highest level since July 23. Twelve respondents forecast an increase.
Oil prices are likely to rise to $95 a barrel by the end of the year, according to a forecast by Hussein Allidina, head of commodity research at Morgan Stanley.
“In the near term, we’re going to see some concern as refiners here in the U.S. go down for maintenance,” he said on Bloomberg Television’s “InBusiness” with Scarlet Fu. “As we go into the back half of the year things do start to look more positive.”
‘Choppy’ Range
Futures are likely to stay in their “large, choppy sideways” range until next year, said Gordon Manning, a Sydney- based technical analyst at National Australia Bank Ltd.
Brent crude for October settlement dropped $1.96, or 2.6 percent, to $74.64 a barrel on the ICE Futures Europe Exchange in London. It fell 4.5 percent this month. Brent cost $2.72 more than New York futures, the widest spread between the two contracts since May 20.
Oil volume in electronic trading on the Nymex was 844,493 contracts as of 3:54 p.m. in New York. Volume totaled 561,115 contracts yesterday, 9.1 percent below the average of the past three months. Open interest was 1.26 million contracts.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
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