Crude Oil Declines as U.S. Economic Reports Signal Fuel Demand May Weaken

Oil fell for the third day this week after the index of U.S. leading indicators dropped for the first time in 10 months in April and sales of existing U.S. homes declined, signals that fuel demand may weaken as the economy struggles to recover.

Oil tumbled 1.7 percent as the index, the New York-based Conference Board’s gauge of the economic outlook for the next three to six months, unexpectedly decreased by 0.3 percent after a revised 0.7 percent gain in March. Japan’s economy shrank more than estimated in the first quarter, a government report showed.

“The leading indicator drop was a little bit of a surprise and just confirms some broader-market fears about the economy in its current position,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas.

Crude for June delivery fell $1.66 to settle at $98.44 a barrel on the New York Mercantile Exchange. Prices have risen 41 percent in the past year.

Brent crude for July settlement slipped 88 cents, or 0.8 percent, to $111.42 a barrel on the London-based ICE Futures Europe exchange.

The index of leading indicators decreased 0.3 percent, the Conference Board reported. It was forecast to increase 0.1 percent, based on the median estimate in a Bloomberg News survey of economists.

Purchases of existing homes dropped 0.8 percent to a 5.05 million annual pace last month, the National Association of Realtors said today in Washington. Economists forecast 5.2 million in a Bloomberg survey before the report.

The U.S. is the world’s largest oil-consuming country, followed by China and Japan.

IEA Production Call

The International Energy Agency trimmed its 2011 global oil-demand forecast for the first time this year in a report last week, saying the year’s price rally is beginning to weigh on consumers, particularly in North America. Nymex futures have climbed 7.7 percent in 2011.

The IEA said today that oil producers need to increase supplies as prices are threatening the global economic recovery.

“There is a clear, urgent need for additional supplies on a more competitive basis to be made available to refiners to prevent a further tightening of the market,” the IEA’s governing board said today in an e-mailed statement. “The rise in oil prices since September is affecting the economic recovery.”

Japan GDP

Japan’s Cabinet Office reported that gross domestic product shrank in the wake of the March 11 earthquake and tsunami. GDP contracted an annualized 3.7 percent in the three months through March, following a revised 3 percent drop in the previous quarter, the Cabinet Office said today in Tokyo.

“Despite the ongoing concerns about the world economy, not all data indicate that the state of the economy is deteriorating,” JPMorgan Chase & Co. analysts led by New York- based Lawrence Eagles said in a report today. “Looking past the headlines of Japan’s economic downturn post the March earthquake and tsunami, there is evidence that elsewhere in emerging markets, economic growth is thriving.”

OPEC will raise exports by the most since mid-February this month to meet growing demand from Asia, according to tanker- tracker Oil Movements. The Organization of Petroleum Exporting Countries will ship 22.91 million barrels a day in the four weeks to June 4, up 1.9 percent from 22.49 million in the period ended May 7, the consultant said today in a report.

Alberta Fires

Firefighters in northern Alberta, Canada, may begin to gain the upper hand over wildfires that shut a pipeline carrying crude from oil-sands projects, Alberta Sustainable Resource Development said.

Wind speeds have fallen from a peak of almost 100 kilometers (62 miles) an hour on May 15 when fires forced the evacuation of all 7,000 inhabitants of the town of Slave Lake, Dave Ealey, a spokesman for the Alberta ministry, said yesterday.

The fires forced Plains All American Pipeline LP to stop cleanup work from an earlier oil spill and shut down its Rainbow pipeline system on May 15. Cenovus Energy Inc. has shut oil production at its Pelican Lake project because of the pipeline closure, Rhona DelFrari, a spokeswoman, said today in an e-mail.

Canada was the biggest source of U.S. oil imports last year, providing 1.97 million barrels a day, according to the Energy Department.

Earlier, crude rose as much as 0.7 percent after U.S. jobless claims declined by 29,000 to 409,000 in the week ended May 14, the lowest level in a month, according to a Labor Department report in Washington. The median estimate of economists in a Bloomberg News survey called for a drop to 420,000.

Oil volume in electronic trading on the Nymex was 524,535 contracts as of 3:26 p.m. in New York. Volume totaled 803,153 contracts yesterday, 12 percent above the average of the past three months. Open interest was 1.56 million contracts.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net.

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