Crude Oil Heads for Fourth Weekly Drop as Brent Premium Widens to Record

Oil fell in New York, heading for a fourth weekly drop, as investors bet fuel demand will falter amid signs of weaker growth in the world’s biggest crude consumers. Brent traded at a record premium to U.S. prices.

Futures slipped as much as 2.4 percent today, leading a decline in global commodity prices, after slumping 5.9 percent yesterday. Supply disruptions in the North Sea and Africa have boosted Brent to $25.95 a barrel above New York crude, which has tumbled 30 percent from its peak this year. U.S. oil supplies are 4 percent higher than the five-year average after unexpectedly rising last week.

“There’s weakness across the euro zone, and the possibility of a dip back into recession is now a material probability,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicts U.S. futures will average $93 a barrel in the third quarter.

Crude for September delivery dropped as much as $2 to $80.38 a barrel in electronic trading on the New York Mercantile Exchange and was at $81.24 at 8:24 a.m. London time. Prices are down 4.8 percent for the week. The more actively traded October contract fell 90 cents to $81.61.

Brent oil for October settlement declined 62 cents, or 0.6 percent, to $106.37 a barrel on the London-based ICE Futures Europe exchange. Prices are 1.5 percent lower this week and 16 percent below this year’s high.

Record Premium

Brent’s premium has widened amid supply disruptions in the North Sea, Nigeria and Libya, in contrast to increasing stockpiles in the U.S. The price, a benchmark grade for Europe, the Mediterranean and Africa, was most recently at a discount to New York crude on Aug. 16, 2010.

“The news out there is not good for crude,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney, who predicts New York oil will average $100 a barrel in 2011. Prices this year have averaged $97.17.

U.S. oil inventories increased 4.23 million barrels to 354 million last week, an Energy Department report showed Aug. 17. They were forecast to drop 500,000 barrels, according to a Bloomberg News survey of analysts.

Supplies haven’t been disrupted by the weather as much as in previous years. The 2011 Atlantic storm season has set a record for the most tropical systems without a hurricane, according to Dennis Feltgen, a spokesman for the National Hurricane Center in Miami. Seven named storms have formed this year, a mark the season usually doesn’t reach until Sept. 16.

Ichimoku Cloud

Oil is extending losses as futures drop below technical support at about $83.83 a barrel, according to data compiled by Bloomberg. That’s the lower of two leading-span lines marking a so-called Ichimoku cloud on the weekly technical chart. Crude fell to a four-year low of $32.40 in December 2008 about two months after breaching a similar support level at $88.83.

Crude may slide next week, a Bloomberg News survey showed. Sixteen of 38 analysts, or 42 percent, forecast a decline through Aug. 26. Last week, 41 percent of respondents projected a gain.

Prices are being driven lower by financial markets, not by supply and demand, Qatar’s oil minister, Mohammed Saleh al Sada, said in Doha yesterday. Qatar, a member of the Organization of Petroleum Exporting Countries, pumped 810,000 barrels of oil in July, according to Bloomberg News estimates.

“In view of the fact that oil is a strategic commodity, we are watching what is happening in global markets,” he said.

Global Economy

Citigroup Inc. cut its growth forecast for the U.S., joining Morgan Stanley in raising concern the global economy will slow. Data yesterday showed jobless claims rose and Philadelphia-area manufacturing shrank by the most since 2009. China will expand 8.9 percent this year, down from an earlier forecast of 9.1 percent, Deutsche Bank AG said in a report dated Aug. 17, citing the “shock” of a U.S. and European Union slowdown.

The U.S., China and Europe will account for about 48 percent of global oil demand this year, according to International Energy Agency estimates.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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