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Crude Oil Falls After U.S. Service-Industries Report Dims Economic Outlook
Crude oil fell after service industries grew in August at the weakest pace in seven months, bolstering concern that the U.S. economic rebound will slow.
Futures slipped after the Institute for Supply Management’s index of non-manufacturing business, which covers about 90 percent of the economy, fell to 51.5 in August from 54.3 the prior month. It was the smallest gain since January. Prices rose earlier when a government report showed companies in the U.S. added more jobs in August than forecast.
“Prices are still pretty lofty, given supply and the economic backdrop,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The economic outlook is at best mixed.”
Crude oil for October delivery declined 42 cents, or 0.6 percent, to settle at $74.60 a barrel on the New York Mercantile Exchange. Futures slipped 0.8 percent this week.
There will be no floor trading on the Nymex on Sept. 6 because of the U.S. Labor Day holiday, and all electronic trades will be counted as part of the Sept. 7 session.
Brent crude oil for October settlement slipped 26 cents, or 0.3 percent, to end the session at $76.67 on the London-based ICE Futures Europe exchange.
The Labor Department said that private payrolls advanced by 67,000, after a revised 107,000 increase in July. Overall employment fell 54,000 for a second month and the unemployment rate rose to 9.6 percent.
“We had two pieces of critical economic data on the Friday before the Labor Day weekend,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. “Prices were bid up after the payroll number, and when the ISM came out investors sold off.”
Mariner Platform Fire
Futures also dropped as U.S. officials investigated the cause of a fire yesterday on a Mariner Energy Inc. oil and natural-gas platform in the Gulf of Mexico that initially drew parallels with the BP Plc spill. Oil rose 1.5 percent yesterday on concern the blast would increase regulations and cut output in the region.
“Today’s move is more of a function of how overbought we were yesterday than anything else,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “Prices climbed after the Mariner explosion yesterday and word that there was a sheen of oil on the water. It now looks like it was an overreaction.”
The Mariner fire was put out, all 13 crew members were rescued unhurt and aircraft were scanning the ocean for any oil spill, U.S. Coast Guard Captain Peter Troedsson said yesterday at a New Orleans press conference.
U.S. Inventories
An Energy Department report on Sept. 1 showed that U.S. petroleum stockpiles, a combination of oil and fuel supplies, climbed 4.04 million barrels, or 0.4 percent, to 1.14 billion, the highest level since at least 1990. Refineries operated at 87 percent of capacity, down 0.7 percentage point from the prior week and the lowest level since April, according to the report.
“There’s plenty of crude around and plenty of refining capacity,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “These are fundamental reasons to not be too bullish. Prices won’t rise to $125 in the next few years unless something really bad happens on the supply side.”
The number of U.S. oil rigs fell by seven to 665, the first drop in seven weeks, according to data published by Baker Hughes Inc. The total has more than doubled in the past year.
‘Awash in Oil’
“The world is awash in oil and in product,” said Ray Carbone, president of Paramount Options Inc. in New York and a trader at the New York Mercantile Exchange. “Our overhang of supply is higher than when oil traded at $64.25 in May.”
Oil in New York touched $64.24 on May 20, the lowest level since July 30, 2009, on concern Europe would struggle to contain the sovereign-debt crisis.
Crude oil may fall next week as U.S. refineries perform seasonal maintenance, reducing demand, a Bloomberg News survey showed. Fourteen of 34 analysts, or 41 percent, forecast oil will decline through Sept. 10. Ten respondents, or 29 percent, predicted that futures will rise, and 10 projected prices will be little changed.
Oil volume on the Nymex was 650,089 contracts as of 3:28 p.m. in electronic trading in New York. Volume totaled 737,674 contracts yesterday, 18 percent above the average of the past three months. Open interest was 1.34 million contracts, the highest since June 14.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
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