Oil Drops on Japan Output, Pares Biggest Weekly Gain Since March

Oil fell in New York, paring its biggest weekly gain since March, as a drop in Japanese industrial output countered bets that U.S. economic growth and a deal to tame Europe’s debt crisis will boost fuel demand.

Futures slid as much as 1 percent after Japanese factory production declined 4 percent in September from the previous month, almost twice as much as the median estimate from economists surveyed by Bloomberg News. Prices rallied yesterday after data showed the U.S. economy grew in the third quarter at the fastest pace in a year and European leaders agreed on a plan to curb the region’s debt crisis.

“Up here oil is expensive given there is no real pressure on demand yet, it’s just all optimism,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney. The drop in Japanese manufacturing “would alleviate demand for crude. It should create softness in the price,” he said.

Crude for December delivery decreased as much as 96 cents to $93 a barrel in electronic trading on the New York Mercantile Exchange. It was at $93.09 at 3:38 p.m. Singapore time. Yesterday, the contract advanced $3.76 to $93.96, the highest settlement since Aug. 1. Prices are 6.5 percent higher this week, set for the biggest gain since the period ended March 4. Futures have climbed 1.9 percent this year.

Brent oil for December settlement on the London-based ICE Futures Europe exchange lost as much as 72 cents, or 0.6 percent, to $111.36 a barrel. The European benchmark contract was at a premium of $18.53 to New York crude, compared with $18.12 yesterday and a record settlement of $27.88 on Oct. 14.

U.S. Growth

The U.S. economy, the world’s largest, expanded at a 2.5 percent annual rate, up from 1.3 percent in the prior three months, Commerce Department data showed yesterday. Household purchases, the biggest contributor to gross domestic product, rose at a 2.4 percent pace, more than forecast by economists.

European leaders cajoled bondholders into accepting 50 percent writedowns on Greek debt and agreed to boost a rescue fund to 1 trillion euros ($1.4 trillion) in a package intended to tame a crisis that threatens to slow the global economy and curb demand for commodities.

The U.S. is the world’s biggest oil consumer, using 19.1 million barrels a day in 2010, or 21 percent of global consumption, according to BP Plc’s annual Statistical Review of World Energy. The European Union accounted for 16 percent of the total and Japan for 5 percent.

New York crude may fall next week on concern European leaders’ plans to fight the debt crisis may provide limited relief, based on a Bloomberg News survey. Fourteen of 29 analysts and traders, or 48 percent, forecast oil will decline through Nov. 4. Six predicted a price gain and nine said there will be little change.

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 in Singapore at akwiatkowsk2@bloomberg.net

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