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Oil Falls on Expectations of Gain in U.S. Supply Report

Oil fell on expectations that U.S. supplies will rise for the first time in three weeks and concern that a weaker economy will curb demand for commodities.

Prices dropped 1.2 percent. Stockpiles probably gained 1.5 million barrels last week, a Bloomberg survey showed before a government report tomorrow. Oil slipped with equities as Alcoa Inc. (AA) cut its aluminum-consumption forecast on waning Chinese growth. Brent oil was little changed on Mideast tension, and its premium to New York futures reached the most in almost a year.

“Looks like the inventory report will be bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Global economic growth is slowing. The fundamentals are overtaking the geopolitical threats.”

Oil for November delivery decreased $1.14 to settle at $91.25 a barrel on the New York Mercantile Exchange. The contract increased $3.06 yesterday to $92.39, the highest settlement since Oct. 1. Prices are down 7.7 percent this year.

Prices were little changed after the industry-funded American Petroleum Institute reported oil inventories gained 1.65 million barrels last week to 364.6 million. Oil fell 96 cents, or 1 percent, to $91.43 a barrel at 4:39 p.m. in electronic trading. It was at $91.41 before the report was released at 4:30 p.m.

Brent for November settlement slid 17 cents to $114.33 a barrel on the London-based ICE Futures Europe exchange.

The European benchmark’s premium to New York-traded West Texas Intermediate oil widened to $23.08, the most since Oct. 20, 2011.

U.S. Supply

Crude inventories grew to 366.2 million in the seven days ended Oct. 5, according to the median of 11 analyst estimates in the Bloomberg survey. Output rose 11,000 barrels a day to 6.52 million in the week ended Sept. 28, the most since December 1996, the Energy Department reported Oct. 3.

The weekly report will be released at 11 a.m. tomorrow in Washington. It’s being delayed a day because of the Columbus Day holiday on Oct. 8.

“We still have abundant supply in the U.S. and demand is still pretty weak,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

The Energy Department lowered its 2012 estimate for gasoline consumption to 8.72 million barrels a day from 8.73 million last month, the department’s Energy Information Administration said today in its monthly Short-Term Energy Outlook. It was 8.75 million in 2011.

The department cut the 2012 oil-price projection to $95.55 a barrel from $95.66 in September. Futures have averaged $95.96 so far this year.

Chinese Slowdown

The U.S. and China are the world’s biggest oil-consuming countries, together accounting for 32 percent of global demand in 2011, according to BP Plc (BP/)’s Statistical Review of World Energy.

The economic slowdown in China spurred Alcoa, the largest U.S. aluminum producer, to cut its 2012 outlook for global demand for the metal. Consumption will rise 6 percent this year, compared with the 7 percent projected in July, the company said yesterday. The World Bank forecast Oct. 8 that the easing growth rate in China would curb a 2012 expansion in Asian countries, excluding Japan and India, to the lowest level in 11 years.

U.S. stocks retreated for a fourth day as Alcoa shares slumped. The Standard & Poor’s 500 Index fell as much as 0.8 percent, and the Dow Jones Industrial Average dropped 1 percent.

“Oil is following the equities,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago.

Mideast Tension

Oil rallied as much as 1.4 percent earlier as Defense Secretary Leon Panetta said the U.S. has sent military advisers to Jordan and offered Turkey assistance to help prepare for humanitarian aid and possible military spillover from the war in neighboring Syria. He spoke after NATO defense ministers concluded a two-day meeting in Brussels.

“The tension could easily spill over from one country to the next,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “That’s the reason that any type of tension there will keep the market on the edge.”

Necdet Ozel, chief of the Turkish general staff, said continued Syrian shelling would provoke a tougher response following six days of retaliatory barrages by his forces against President Bashar al-Assad’s army. The comments were broadcast by CNN-Turk television.

The Turkish retaliation followed the deaths of five people from a Syrian artillery shell that hit the border town of Akcakale Oct. 3. Ozel inspected troops today in Akcakale as well as another border town, Suruc in Sanliurfa province.

Electronic trading volume on the Nymex was 585,054 contracts as of 5:05 p.m. Volume totaled 764,375 contracts yesterday, 46 percent above the three-month average and the highest level since Sept. 19. Open interest was 1.54 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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