Oil Falls Most in Two Weeks on Economic Growth Concern

Oil tumbled the most in two weeks as Microsoft (MSFT) Corp. and General Electric Co. missed quarterly sales forecasts, raising concern that slowing economic growth will reduce oil demand.

Crude prices and the Standard & Poor’s 500 Index (SPX) declined for a second day on the companies’ results and as euro-area leaders failed to discuss further aid for Spain at a summit in Brussels. Oil also retreated as the euro weakened against the dollar amid speculation the debt crisis is worsening.

“The weak earnings are making people nervous about the shape of the economy and about oil demand,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The dollar is up and stocks are down, and that’s pushing oil lower.”

Crude for November delivery fell $2.05, or 2.2 percent, to settle at $90.05 a barrel on the New York Mercantile Exchange, the biggest decline since Oct. 3. Futures slipped 2 percent this week and are down 8.9 percent this year.

Brent for December settlement dropped $2.28, or 2 percent, to end the session at $110.14 a barrel on the London-based ICE Futures Europe exchange.

The S&P 500 slumped as much as 1.9 percent after Microsoft and GE (GE) reported revenue that fell short of analysts’ predictions. Microsoft, the largest software maker, said yesterday that the fiscal first quarter was affected by declining sales of Windows, its operating system. GE cut its 2012 revenue-growth forecast on weaker third-quarter demand.

U.S. Supplies

U.S. oil stockpiles jumped to a two-month high last week as output reached the most in 17 years, the Energy Department said Oct. 17. Gasoline demand has slipped 6.2 percent since August.

“The economy is the primary driver in the market,” said said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We have a well-supplied market in the U.S. and demand is weak.”

U.S. oil consumption declined to a four-year low last month on economic weakness, the American Petroleum Institute reported today in Washington. Total petroleum deliveries, a measure of demand, dropped 3.8 percent from a year earlier to 18.2 million barrels a day, the lowest level since September 2008.

Oil may fall next week on concern that supply is outpacing demand. Nineteen of 33 analysts, or 58 percent, forecast crude will decrease through Oct. 26. Seven respondents, or 21 percent, predicted a gain and seven forecast little change.

Euro Falls

Crude also declined as the euro retreated as much as 0.4 percent against the dollar. A weaker euro and stronger dollar reduce oil’s investment appeal.

Spanish Prime Minister Mariano Rajoy said after the euro- region summit in Brussels that his nation doesn’t feel that it’s under any pressure to ask for a bailout, fueling concern the debt crisis will be prolonged. Germany and France agreed to enforce common banking regulation for the euro area’s 6,000 lenders by the end of 2013.

“The macro economy is overshadowing the market,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “There is a lot of disappointment after the EU meeting in Brussels.”

Oil also declined after failing to sustain gains above $93 a barrel, said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. Oil rose to $93.05 earlier as TransCanada Corp. shut the Keystone pipeline to the U.S.

“We have such big resistance at $93 and the outside broader market is running the show,” he said. “The dollar is up and we have stocks falling.”

Keystone Restart

TransCanada (TRP) closed the 590,000-barrel-a-day Keystone line Oct. 17 for three days of repairs after finding an “anomaly” in a section running from Missouri to Illinois. Keystone moves oil from Canada to Cushing, Oklahoma, the delivery point for New York futures.

The company plans to restart the line tomorrow, James Millar, a company spokesman in Calgary, said in an e-mail yesterday. TransCanada may have to deliver extra crude in November to make up the amount shippers will lose this month as a result of the shut-in, he said.

“The news about Keystone initially drove prices up, but as people digested it, they realized it’s not as important as they thought,” Lynch said.

Implied volatility for at-the-money options expiring in December, a measure of expected swings in futures and a gauge of options prices, rebounded from the lowest level since May. Prices posted a daily change of 25 cents or less during each of the past five sessions. Volatility was 29.2 percent at 3:20 p.m. in New York. It was 28 percent each of the past two days.

Electronic trading volume on the Nymex was 549,376 contracts as of 3:30 p.m. Volume totaled 533,036 contracts yesterday, 1.1 percent above the three-month average. Open interest was 1.59 million.

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

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.