West Texas Intermediate settled at the lowest level this year as the U.S. economy grew less than economists forecast and the euro weakened against the dollar. Prices fell 5.6 percent in February.
Futures extended the first monthly drop since October as the Commerce Department reported that gross domestic product grew at a 0.1 percent annual rate in the fourth quarter. The median forecast called for a 0.5 percent gain in a Bloomberg survey. The euro headed for the first monthly drop against the dollar since July, reducing oil’s appeal as an investment alternative.
“We know the economy is not running on all cylinders and it’s going to impact oil demand,” said Tariq Zahir, a New York- based commodity fund manager at Tyche Capital Advisors. “The dollar is quite strong and it’s adding pressure to oil. Today is the end of month and a lot of guys are taking profit. It’s not surprising to have a risk-off day.”
WTI for April delivery dropped 71 cents, or 0.8 percent, to $92.05 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 31. Trading was 16 percent below the 100- day average for the time of day at 5:48 p.m.
Brent for April settlement dropped 49 cents, or 0.4 percent, to end at $111.38 a barrel on the London-based ICE Futures Europe exchange. Volume was 23 percent above the 100-day average. The European benchmark crude’s premium over WTI widened to $19.33.
The fourth-quarter GDP was revised up from a previously estimated 0.1 percent drop. Economists’ projections ranged from a 0.1 percent drop to a gain of 1 percent.
“The GDP revision is barely positive and is a little disappointing,” said Jacob Correll, a Louisville, Kentucky- based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “But still, we are going in the right direction.”
For all of 2012, the economy expanded 2.2 percent after a 1.8 percent increase in the prior year, the Commerce Department said. Federal military outlays declined last quarter at a 22 percent annual pace, the biggest decrease since 1972.
Across-the-board federal spending reductions, known as sequestration, are set to begin tomorrow. Unless they’re averted, the automatic cuts would total $85 billion in the final seven months of this fiscal year and $1.2 trillion over nine years. About half would come from defense and the rest from discretionary domestic spending.
“The GDP number is adding some negative sentiment to the market ” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The fear is that GDP growth is going to get even worse after the sequester.”
The U.S., the world’s biggest consumer, will use 18.65 million barrels of oil a day this year, the Energy Information Administration, the Energy Department’s statistical arm, forecast in a monthly report on Feb. 12. That’s down from 18.71 million the agency forecast in January.
Crude supplies climbed 1.1 million barrels last week to 377.5 million, the most since July 20, the EIA reported yesterday. The gain was the sixth in a row.
“It’s hard to be bullish about oil in the months ahead,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Rising inventories and high production levels are keeping are putting downward pressure on prices.”
OPEC crude output rose for the first time in six months as rising Libyan production outpaced a cut by Saudi Arabia, which has implemented a program aimed at curbing excess supply and supporting prices, a Bloomberg survey showed.
The dollar strengthened as much as 0.6 percent to $1.3058 per euro. European Central Bank President Mario Draghi said at an event in Munich late yesterday that the bank has no intention of tightening monetary policy anytime soon. The Dollar Index (DXY), which averages the exchange rates against other major currencies, rose as much as 0.4 percent.
Oil gained earlier after the Labor Department reported jobless claims decreased 22,000 to 344,000 in the week ended Feb. 23. The median forecast of 44 economists surveyed by Bloomberg called for 360,000 applications. The number of people collecting unemployment insurance dropped to the lowest level since June 2008.
Electronic trading volume on the Nymex was 408,863 contracts as of 5:49 p.m. It totaled 451,491 contracts yesterday, 15 percent below the three-month average. Open interest was 1.66 million contracts.
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