Oil Drops a Third Day in London on Crude Supply Increase

Brent oil dropped for a third day in London on speculation that U.S. supplies may have shrunk less than estimated, while investors awaited the outcome of a Federal Reserve meeting on monetary policy.

Brent futures lost as much as 0.9 percent, and the U.S. benchmark West Texas Intermediate fell 0.7 percent. An industry report yesterday showed U.S. crude stockpiles fell 550,000 barrels. That decline is less than the 1.3 million forecast by analysts before an Energy Department report. The Fed concludes a two-day meeting in Washington today.

“Energy markets are stuck near the lows” from this week, Ole Hansen, senior manager of trading advisory at Saxo Bank A/S, said by phone from Copenhagen. “Everyone’s sitting on the fence, watching the markets, not prepared to commit themselves at this point.”

Brent crude for August settlement was at $95.28 a barrel, down 48 cents, on the London-based ICE Futures Europe exchange at 1:33 p.m. local time. The front-month price for the European benchmark contract was at a premium to West Texas Intermediate of $10.95, compared with $11.41 yesterday.

On the New York Mercantile Exchange, oil for July delivery, which expires today, was at $84.08 a barrel, 5 cents higher, in electronic trading. It rose 0.9 percent yesterday to $84.03, the highest close since June 15. The more-actively traded August contract fell 2 cents to $84.33 a barrel. Front-month prices are down 15 percent this year.

Fed Stimulus

The U.S. central bank is forecast to announce additional stimulus measures as soon as this week’s meeting, according to 12 of the 21 primary dealers who trade with the Fed.

In Europe, where financial woes have raised concern about economic recovery and future energy demand, Spain is scheduled to sell debt tomorrow maturing in 2014, 2015 and 2017. Yields on the nation’s 10-year government debt increased to 7.29 percent on June 18, the highest level since the euro was introduced in 1999. While yields eased yesterday, they remained above the 7 percent level that pushed Greece, Ireland and Portugal to seek rescue packages.

“WTI prices could be more vulnerable to a sell-off should the Fed disappoint, with bad news from Europe priced into the Brent market,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a report today.

Higher Inventories

Crude stockpiles at Cushing, Oklahoma, the delivery point for New York futures, rose 625,000 barrels to a record last week, data from the American Petroleum Institute showed. Gasoline inventories increased 1.1 million barrels, compared with a forecast gain of 1 million barrels in today’s government report, according to the median estimate of 11 analysts in a Bloomberg News survey. Distillate supplies, a category that includes heating oil and diesel, slid 269,000 barrels compared with a projected gain of 1 million.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Iran and world powers failed to reach a breakthrough after two days of talks in Moscow aimed at alleviating the threat of military action against the second-biggest oil producer in the Organization of Petroleum Exporting Countries.

Western powers contend Iran is hiding a nuclear-weapons program, and the U.S. and Israel have declined to discount the possibility of strikes against atomic installations.

Downplaying Iran

“It’s not really having much of an impact because we’re seeing slowing demand,” Hansen of Saxo Bank said. He doesn’t expect the European Union ban on Iranian oil imports, which takes full effect July 1, to cause major difficulties in the market.

OPEC’s decision last week to leave its crude production ceiling unchanged gives flexibility to Saudi Arabia to cut output depending on demand, according to former Algerian Oil Minister Chakib Khelil.

Demand is still increasing from China, India and Japan, though there are uncertainties over Europe’s debt crisis, Khelil said in an interview with Francine Lacqua on Bloomberg Television’s “On the Move.”

To contact the reporters on this story: 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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