Oil Near Six-Week Low as U.S. Stockpiles Rise, Fuel Demand Slips

Oil traded near the lowest in six weeks as U.S. crude stockpiles increased more than estimated and gasoline use fell to a 10-year low. Brent crude in London was at the biggest premium to New York oil in 12 weeks.

Futures declined for a fifth day, losing as much as 1 percent after an Energy Department report yesterday showed crude supplies in the U.S. rose by 4.2 million barrels last week. Inventories were projected to increase 2.6 million barrels, according to a Bloomberg News survey. Talks on Iran’s nuclear program have made little progress, German Chancellor Angela Merkel said in a speech in Beijing today.

“The bears worried about poor demand after last night’s data and prices weakened,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who expects Brent crude to trade in a range of $110.50 to $112.50 a barrel this week. “But Iran is still a cause for concern.”

Crude for March delivery on the New York Mercantile Exchange was at $97.21 at 1:41 p.m. London time after falling as much as 95 cents to $96.66 a barrel, the lowest since Dec. 20. The contract fell 0.9 percent yesterday to $97.61 a barrel. Prices are down 1.6 percent this year.

Brent oil for March settlement was up 86 cents at $112.42 a barrel on the London-based ICE Futures Europe exchange. It rose 58 cents yesterday to $111.56, the highest close since Jan. 11. The European benchmark contract’s premium to West Texas Intermediate futures increased to as much as $15.24, the widest since Nov. 14. That compares with a record spread of $27.88 on Oct. 14.

North Sea Oil

Brent’s premium to U.S. crude reflects unrest in Nigeria, Africa’s top oil producer. Nigerian security forces arrested the alleged spokesman of a militant Islamist group blamed for bombings and gun attacks that killed hundreds this year, the State Security Service said yesterday.

“Given the concerns in Nigeria, we can anticipate the potential for this spread to retract lost ground and see it heading back to $15 a barrel,” said Jonathan Barratt, chief executive officer of Barratt’s Bulletin in Sydney.

More North Sea oil is being shipped to Asia than at any time in the past eight years as prices fall to the lowest levels in 15 months compared with Middle East alternatives, according to shipping data.

Companies led by BP Plc and Vitol Group have sent at least 8 million barrels of North Sea oil to Asian ports since mid- December, equivalent to six days of U.K. production, according to ship-tracking data from AISLive Ltd. That’s the most for any month since 2004, according to data from Galbraith’s Ltd., a London-based shipbroker.

U.S. Employment

A Labor Department report tomorrow may show payrolls last month rose by 145,000 and the unemployment rate held at 8.5 percent, according to a Bloomberg News survey of 40 economists.

“If the data continues to show a lift in economic activity then this should translate to a lift in demand for the commodity,” Barratt said. “Oil potential could break out of its trading doldrums.”

Bank of America Corp. raised its estimate for Brent to $108 a barrel from $100, and for WTI to $100 from $92.

“Supply remains exceptionally scarce,” Francisco Blanch, the bank’s New York-based head of commodities research, said in a note dated yesterday. “But demand is decelerating sharply and our supply models indicate a ramp-up in volumes as we head in the second quarter.”

Gasoline Demand Falls

Gasoline consumption decreased to 7.97 million barrels a day, the lowest since September 2001, according to Energy Department data. Stockpiles of the fuel increased 3.02 million barrels last week, the report showed. They were projected to rise 500,000 barrels, according to the median of 12 analyst estimates in the Bloomberg News survey.

Distillate inventories, a category that includes heating oil and diesel, dropped by 135,000 barrels, the U.S. report showed. They were estimated to decline 1.38 million barrels, according to the survey.

Oil initially climbed yesterday in New York after data from the Institute for Supply Management showed manufacturing in the U.S. grew in January at the fastest pace in seven months. The Tempe, Arizona-based group’s manufacturing index rose to 54.1 from 53.1 in December. The median forecast of economists surveyed by Bloomberg News was 54.5.

China, the world’s second-largest oil user, may raise retail fuel prices for the first time since April following gains in the crude grades the government tracks.

The moving average of Brent, Dubai and Indonesia’s Cinta crudes, the three types in the country’s pricing basket, over the past 22 working days climbed 4.3 percent as of yesterday, according to C1 Energy, a commodity researcher based in Shanghai. That’s above the 4 percent target that could trigger a fuel adjustment by the National Development and Reform Commission, China’s top economic regulator.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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