Oil Extends Biggest Drop in Two Months on U.S. Slowdown Concern

Oil declined for a second day in New York, extending its biggest drop in two months, on concern that a U.S. economic slowdown may curb demand in the world’s largest consumer of crude.

Futures fell as much as 1.3 percent, deepening yesterday’s 2.4 percent loss. Crude tumbled almost $4 in three minutes yesterday before the expiry of October options contracts. The Federal Reserve Bank of New York’s general economic index, known as the Empire State Index, fell to a three-year low. Saudi Arabia is taking action to reduce oil prices, a Persian Gulf official with knowledge of the matter said today.

“The market remains bearish,” Bjarne Schieldrop, chief commodity analyst at SEB AB, said by telephone from Oslo. “Markets had been lifted by stimulus euphoria and were brought down by a very disappointing Empire State report.”

Oil for October delivery fell as much as $1.23 to $95.39 a barrel in electronic trading on the New York Mercantile Exchange and was at $95.90 at 1:45 p.m. London time. The contract slid $2.38 yesterday to $96.62, the lowest close since Sept. 10 and its biggest decline since July 20. Prices are 3 percent lower this year.

Brent crude for November settlement fell 30 cents to $113.49 on the London-based ICE Futures Europe exchange. It dropped 2.5 percent yesterday. The front-month European benchmark grade’s premium to the corresponding West Texas Intermediate rose to $17.24 a barrel from $16.84 yesterday.

Brent will trade in the range of $100 to $120 a barrel, David Fransen, the chief executive officer of Vitol SA’s Geneva- based unit, said in a presentation to the British-Swiss Chamber of Commerce in Geneva.

Increased Rhetoric

Prices have gained this quarter “due to the increased rhetoric surrounding Iran and Israel,” according to Fransen, who said yesterday’s drop may have been triggered by high- frequency trading, in which traders use computer algorithms to buy or sell commodities in fractions of a second.

The price declines may attract regulatory scrutiny of computer trading, Commerzbank AG said today in a report.

“Such pronounced price fluctuations give rise to criticism of high-frequency trading and the excessive influence of speculative investors on the most important commodity, and are likely to be closely monitored by policy makers and stock exchange regulators,” the Frankfurt-based bank said.

CME Group Inc. suffered from no technical issues as crude oil, gasoline and heating oil dropped on its Nymex exchange, said Chris Grams, a CME spokesman. The U.S. Commodity Futures Trading Commission in Washington will look into the decline and trading surge, Commissioner Bart Chilton said.

Strategic Reserves

U.S. President Barack Obama’s administration hasn’t changed its position on U.S. strategic reserves, and “all options remain on the table,” Jay Carney, a government spokesman, said in an e-mail yesterday.

Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, is acting to calm prices by pumping about 10 million barrels a day and will produce more oil if customers demand it, a Persian Gulf official with knowledge of the matter said today.

The ideal crude price for OPEC is $100 a barrel, and current prices are not supported by fundamental supply and demand, the official said, declining to be identified because he’s not authorized to speak publicly. The oil market is well balanced and commercial inventories are growing as more supply comes on stream, while demand is slowing and growth won’t exceed 800,000 barrels a day in 2013, the official said.

Stockpile Report

An Energy Department report tomorrow may show crude stockpiles rose a second week, according to a Bloomberg News survey of analysts. Inventories probably climbed 1 million barrels last week, according to the median estimate of seven analysts.

The American Petroleum Institute will release separate stockpile data today. 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.

The Federal Reserve Bank of New York’s general economic index released yesterday dropped to minus 10.41, the lowest level since April 2009, from minus 5.85 in August. The median forecast of 53 economists in a Bloomberg survey called for minus 2. Readings of less than zero signal a contraction for the area of New York, northern New Jersey and southern Connecticut.

To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net Grant Smith in London at gsmith52@bloomberg.net

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