Crude Declines on Stockpile Release Speculation, China

Oil fell in New York for the second time in three days after France said industrialized nations are considering a release from strategic stockpiles and a report showed Chinese manufacturing may contract.

Futures dropped as much as 1.5 percent after French Industry Minister Eric Besson said the country is “studying with its partners all possible options,” including the supply of oil from emergency reserves. Manufacturing in China, the world’s second-largest oil consumer, may decline for a fifth month in March, according to a report today from HSBC Holdings Plc and Markit Economics.

“There is no motivation for buying,” said Gerrit Zambo, a trader at Bayerische Landesbank in Munich. “People are becoming a bit cautious because it is more or less clear that Iran doesn’t want to get into war with anyone, and talk of releasing strategic stocks is bearish.”

Crude for May delivery slid as much as $1.60 to $105.67 a barrel in electronic trading on the New York Mercantile Exchange. It was at $106.01 at 12:37 p.m. London time. The contract gained $1.20 yesterday to $107.27, the highest close since March 19. Prices are 7.3 percent higher this year.

Brent oil for May settlement on the London-based ICE Futures Europe exchange declined as much as $1.22, or 1 percent, to $122.98 a barrel. The European benchmark contract was at a premium of $17.65 to New York futures. The difference was $16.93 at yesterday’s close, the smallest in three weeks.

The preliminary index of Chinese manufacturing slid to 48.1 for March, the lowest level since November, and compares with a final 49.6 in February, according to HSBC and Markit Economics. A reading below 50 indicates contraction.

Strategic Reserves

President Barack Obama discussed releasing emergency oil supplies with U.K. Prime Minister David Cameron on March 14. The leaders reached no agreement, according to Cameron and Jay Carney, the White House press secretary. The International Energy Agency coordinated the sale of 60 million barrels of crude and refined products in July and August after Libya’s output was disrupted by an uprising against former leader Muammar Qaddafi.

Higher energy prices may weaken the U.S. economy by sapping consumer spending, Federal Reserve Chairman Ben S. Bernanke told Congress yesterday in response to questions from the House Committee on Oversight and Government Reform.

Saudi Arabia, the world’s biggest crude exporter, can increase production by as much as 25 percent immediately if needed, Oil Minister Ali al-Naimi said March 20. The kingdom has the capacity to produce 12.5 million barrels a day and will pump about 9.9 million barrels a day this month and in April, according to al-Naimi.

‘Evenly Matched’

“All the powers that be now are trying to get oil prices down,” Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity markets newsletter in Sydney, said in a Bloomberg Television interview. “The bulls and the bears are quite evenly matched because when it gets low we see Iran coming up, when it gets high, we see the Fed, the U.K. and Saudi Arabia coming out saying they can placate any concerns.”

Oil in New York has technical support along the middle Bollinger Band on the daily chart, around $105.49 a barrel today, according to data compiled by Bloomberg. Buy orders tend to be clustered near chart-support levels. Futures yesterday traded within the previous day’s range, creating an “inside day” candlestick that signals investors are unsure of the direction for short-term prices.

Crude stockpiles in the U.S., the largest oil user, fell by 1.2 million barrels in the week ended March 16, according to an Energy Department report yesterday. That is less than the median 2.2 million drop forecast by analysts in a Bloomberg News survey.

Gasoline inventories declined 1.2 million barrels last week to 226.9 million, according to the report. A measure of demand for the motor fuel slid for the third week in four. Distillate supplies, a category that includes heating oil and diesel, increased 1.76 million barrels, the report showed. That’s the biggest gain in 10 weeks.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Ayesha Daya in Dubai at adaya1@bloomberg.net

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

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