Crude Oil Falls on Slowing U.S. Consumption, IEA Reserve Release
Oil fell, extending its biggest one- day drop in seven weeks in London, on concern slowing U.S. economic growth will reduce demand and after the International Energy Agency said its members will sell oil from reserves.
Brent dropped as much as 1.5 percent, extending yesterday’s 6.1 percent decline, after the International Energy Agency agreed to release 60 million barrels to buyers starting next week. The U.S. Federal Reserve this week cut its forecasts for growth and employment this year and next.
“There are clear signs that the U.S. and Chinese economies are slowing,” Roland Stenzel, an oil trader at E&T Energie Handelsgesellschaft mbH, said from Vienna. “The IEA triggered a lot of stop losses,” he said, referring to the automatic instruction to buy or sell a commodity at a certain level.
Brent oil for August delivery dropped 70 cents to $106.56 a barrel on the ICE Futures Europe exchange as of 1:05 p.m. London time. The contract closed at 107.26 a barrel yesterday, the lowest closing price since Feb. 22. Crude for August delivery on the New York Mercantile Exchange was down 37 cents at $90.65.
The IEA announced the release of 2 million barrels a day for 30 days yesterday to make up for supplies choked off by an armed rebellion in Libya. The U.S. Strategic Petroleum Reserve will provide 30 million barrels, European members will supply about 20 million and Asian nations the remainder.
“The IEA stock release has had a strong impact on front prices,” Christophe Barret, a London-based oil analyst at Credit Agricole SA said in a report today. “It temporarily relaxes a stock obligation constraint and allows refiners to process more sweet crudes.”
OPEC Production
The decision followed the Organization of Petroleum Exporting Countries’ failure to reach an accord on production increases at a June 8 meeting in Vienna. The group said two days later it would need to pump 30.9 million barrels a day in the third quarter, 1.9 million barrels more than it supplied in May.
“The oil prices has been correcting for a few days now, so I’d hesitate to attribute all the losses to the IEA news,” said Tobias Merath, head of commodity research at Credit Suisse at Credit Suisse AG in Zurich. “There’s quite a bit of concern about the economic outlook. For sentiment in commodities to stabilize, we’ll require positive economic surprises.”
It’s the third time the IEA has coordinated the use of emergency stockpiles since the agency was founded in 1974. The first was during the 1991 Persian Gulf War and the second was after Hurricane Katrina in 2005. The Paris-based IEA is an energy policy adviser to 28 industrialized nations including the U.S., Japan and Germany.
To contact the reporter on this story: Rachel Graham in Belfast rgraham13@bloomberg.net
To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net
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