Crude Oil Caps Fourth Weekly Decline; Brent Extends Record Premium to WTI

Crude oil fell, capping a fourth weekly decline, on concern that slower global economic growth will reduce fuel demand. Brent oil traded at a record premium to the U.S. contract.

Futures in New York have dropped 18 percent since July 22, the biggest four-week decline since October 2008. Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) cut their U.S. growth forecasts as officials struggle to stem Europe’s sovereign-debt crisis. Oil pared losses as the dollar weakened, making commodities more attractive as an alternative investment.

“Sentiment has deteriorated significantly and swiftly over the past week,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We’re on the cusp of a recessionary environment globally, which is putting a damper on the demand outlook and being reflected in the oil price.”

Crude oil for September delivery dropped 12 cents to $82.26 a barrel on the New York Mercantile Exchange, the lowest settlement since Aug. 9. Prices fell 3.7 percent this week and are down 10 percent this year. The more actively traded October contract fell 10 cents to $82.41.

Brent oil for October settlement increased $1.63, or 1.5 percent, to $108.62 a barrel on the London-based ICE Futures Europe exchange. The European benchmark settled at a record premium to U.S. futures of $26.21 for the second day in a row, based on settlement prices.

Brent 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. Brent, a benchmark grade for Europe, the Mediterranean and Africa, last traded at a discount to New York crude on Aug. 16, 2010.

The U.S. gross domestic product will grow 1 percent in the fourth quarter rather than the 2.5 percent previously forecast and 0.5 percent in the first quarter of 2012 instead of 1.5 percent, JPMorgan said in a note e-mailed to clients today. Citigroup cut its 2011 growth forecast to 1.6 percent from 1.7 percent and lowered its projection for next year to 2.1 percent from 2.7 percent, according to a note dated yesterday.

The Standard & Poor’s 500 Index declined 1 percent to 1,129.63 and the Dow Jones Industrial Average dropped 1 percent to 10,877.32 at 2:30 p.m., when floor trading on the Nymex closed. The S&P 500 fell 16 percent from an almost three-year high on April 29 through yesterday amid concern that Europe’s debt crisis would hurt the global economy.

Crude oil’s decline yesterday, the third-biggest this year, came after Morgan Stanley and Deutsche Bank AG cut their forecasts for global economic expansion. Futures plunged 34 percent from a 2 1/2-year high of $114.83 on May 2 to $75.71 on Aug. 9.

‘Schizophrenic’ Market

“The crude oil market has been schizophrenic,” said David Kavanagh, president of Grant Park Fund in Chicago, manager of a $1 billion managed futures portfolio. “The market dropped from about $115 to $75 in three months before climbing again.”

The S&P GSCI Index of 24 raw materials rose 1.1 percent to 642.29. Eighteen commodities increased. Gold for December delivery climbed 1.7 percent to $1,852.20 an ounce on the Comex in New York, the fourth straight record settlement.

“Commodities are still in an uptrend while significant technical damage has been done to the equity market,” Kavanagh said. “Gold is the biggest bull market in the world now.”

The dollar fell 0.4 percent to $1.4387 against the euro from $1.4333 yesterday. The Dollar Index, which tracks the dollar against currencies including the yen, pound and Swedish krona, slipped 0.3 percent to 73.996. A lower U.S. currency cuts the appeal of dollar-denominated commodities as an investment.

New York oil may fall next week on concern that global economic growth is slowing, a Bloomberg News survey showed. Sixteen of 38 analysts, or 42 percent, forecast oil will decline through Aug. 26. Eleven respondents, or 29 percent, predicted prices will increase and 11 estimated there will be little change during the period.

Oil volume in electronic trading on the Nymex was 700,316 contracts as of 3:53 p.m. in New York. Volume totaled 918,723 contracts yesterday, 35 percent above the average of the past three months. Open interest was 1.5 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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

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