Oil Falls on U.S. Fuel Demand Report

Oil in New York fell for the first time in four days after a government report showed fuel demand weakened last week and on concern that the Federal Reserve won’t enact additional stimulus measures.

Prices declined 0.3 percent as the Department of Energy said U.S. petroleum demand decreased for the first time in four weeks. The report also showed oil supplies dropped less than in an American Petroleum Institute report yesterday. Dallas Fed President Richard Fisher said central banks may not have the capacity to undertake more programs to spur economic growth.

“The DOE report is kind of anticlimactic and the market is a bit disappointed,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “The market is now focusing on the economy and it’s nervous about what the Fed is going to do.”

Crude for September delivery fell 32 cents to settle at $93.35 a barrel on the New York Mercantile Exchange after increasing to $94.72, the highest intraday level since May 15. Prices have fallen 5.5 percent this year.

Brent oil for September settlement rose 14 cents to end the session at $112.14 on the London-based ICE Futures Europe exchange.

Total products supplied, a measure of fuel consumption, dropped 204,000 barrels a day to 18.9 million last week, the first decline since the week ended July 6.

“Market momentum has shifted a little bit after the inventory report,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “People started to just cut and run.”

U.S. Supply

Crude stockpiles fell 3.73 million barrels to 369.9 million, the department figures showed. The industry-funded API reported a decrease of 5.35 million barrels yesterday.

Supplies at Cushing, Oklahoma, the delivery point for Nymex futures, decreased 1.8 percent to 44.3 million barrels. Inventories at the Midcontinent pipeline hub have dropped 7 percent since June.

“The futures market tends to look at the latest number and see how that correlates with prior numbers,” said Marshall Berol, co-portfolio manager of the Encompass Fund in San Francisco, which has about $300 million in assets.

Oil futures gained 3.6 percent in July, the biggest monthly advance since February, on speculation that central banks in the U.S. and Europe will announce stimulus measures to boost economic growth, raising oil demand.

Economic Stimulus

Fisher said in an interview today on “Bloomberg Surveillance” with Tom Keene that adequate economic stimulus already is in place.

“We’re at the risk of overburdening the central banks,” he said. “We keep applying what I call monetary Ritalin to the system. We all know there’s a risk of over-prescribing.”

Ritalin is a drug used to treat depression and hyperactivity in children.

Fed Chairman Ben S. Bernanke said July 17 that policy makers were studying options for further stimulus. The Fed refrained from announcing steps at a meeting last week.

Oil also declined as a report showed German exports fell more than forecast in June and the euro decreased against the dollar. The European currency dropped as much as 0.6 percent to $1.2327. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.

“Concerns about the European economy are dominating the market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Middle East

Prices rose earlier on concern that tension in the Middle East will disrupt global supplies.

Syria’s former Prime Minister Riad Hijab, the most senior defector from President Bashar al-Assad’s administration, arrived in Jordan as rebels said government forces had begun a ground assault against a key Aleppo district.

In Egypt, the army began a campaign to purge north Sinai of militants, with attack helicopters killing a reported 20 fighters, as President Mohamed Mursi fired his intelligence chief and a regional governor. Sinai is an Egyptian peninsula between the Suez Canal and the Israel border.

Total petroleum transit volume through the canal in 2010 was about 2 million barrels a day, according to the Energy Department. The Middle East was responsible for 33 percent of global oil production last year and held 79 percent of proved reserves, according to BP Plc (BP/)’s Statistical Review of World Energy, released in June.

Electronic trading volume on the Nymex was 534,233 contracts as of 2:49 p.m. in New York. Volume totaled 651,093 contracts yesterday, 18 percent above the three-month average. Open interest was 1.45 million.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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