Oil Falls a Second Day as U.S. Equities Decline
Oil fell for a second day as U.S. equities moved lower and as Japan’s economy grew more slowly than expected. The discount of New York futures to Brent widened to a four-month high.
Prices dropped 0.2 percent as the Standard & Poor’s 500 Index ended the longest advance in 20 months. Japan’s gross domestic product increased at a 1.4 percent annual rate in the second quarter, below the 2.3 percent median estimate of economists polled by Bloomberg. Brent gained as tension increased in the Middle East.
“The equity market is pretty weak and that’s pushing oil lower,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “We had the Japanese news on the GDP, which is a disappointment.”
Crude for September delivery decreased 14 cents to settle at $92.73 a barrel on the New York Mercantile Exchange. Prices are down 6.2 percent this year.
The S&P index dropped as much as 0.6 percent. The benchmark measure on Aug. 10 completed its longest rally since December 2010 amid speculation the Federal Reserve would introduce more stimulus measures.
“Geopolitical tension is on the forefront but the weaker stock market is weighing on oil,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “The market is pulling back with the equities.”
The second-quarter growth in Japan was slower than the 5.5 percent gain the previous quarter. Unadjusted for prices, GDP contracted at a 0.6 percent annual pace. Japan used 4.42 million barrels a day of oil last year, behind only the U.S. and China, according to BP Plc (BP/)’s Statistical Review of World Energy released in June.
Brent oil for September settlement advanced 65 cents, or 0.6 percent, to $113.60 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate in New York widened to $20.87 a barrel, a four- month high.
The spread between the two grades has widened amid maintenance shutdowns at North Sea fields that are the physical basis of the Brent futures contract. BP Plc on Aug. 10 said it will close its Ninian Pipeline System in the area for 10 days.
Brent also rose on concern that Middle East tension will disrupt supplies from a region that produces about one-third of the world’s oil.
Israel’s Home Front Command planned to test its nationwide text-message public alert system amid reports that the country is considering a strike against Iran in an effort to halt that nation’s nuclear program.
Channel Two news said Aug. 10 that Prime Minster Benjamin Netanyahu and Defense Minister Ehud Barak see the window for a strike closing within months. The leaders are leaning toward an attack before U.S. elections in November, the Haaretz daily reported Aug. 10.
“Brent is leading the chart today because of concerns about the upcoming maintenance,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The market is very sensitive to the key movements in the Middle East.”
In Egypt, President Mohamed Mursi, who is backed by the Muslim Brotherhood, ordered the retirement of Field Marshal Mohamed Hussein Tantawi, the defense minister, and Lieutenant General Sami Enan, the armed forces’ chief of staff. The announcement, which attempts to reclaim some authority the military stripped from the office, followed the Aug. 5 killing of 16 Egyptian soldiers by militants in Sinai.
“The decision by the Egyptian president is a big game- changer, because Israel really hasn’t had to worry about defending their southern border and now they are going to have to,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “It’s another added uncertainty that’s pushing oil prices higher.”
The U.S. Navy said yesterday one of its guided-missile destroyers collided with an oil tanker near the Strait of Hormuz in the Persian Gulf. Iran threatened to close the strait, through which almost 20 percent of the world’s traded crude flows, as the European Union imposed sanctions on Iranian oil on July 1.
The Middle East produced 27.7 million barrels a day of oil in 2011, according to the BP statistical review.
Electronic trading volume on the Nymex was 496,583 contracts as of 2:47 p.m. in New York. Volume totaled 502,143 contracts yesterday, 8.6 percent below the three-month average. Open interest was 1.47 million.
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