Brent Crude Oil Falls Below $100 a Barrel

Brent crude fell below $100 a barrel for the first time since July on signs economic growth will slow, curbing demand. West Texas Intermediate oil was little changed before a report that may show a U.S. supply gain.

Brent futures dropped 0.7 percent as the International Monetary Fund cut its global growth forecast and urged European policy makers to take action to bolster growth. Futures tumbled yesterday after data showed China’s economy expanded at a slower pace than expected last quarter. A government report tomorrow will probably show that U.S. crude supplies gained 1.2 million barrels last week to 390.1 million, the highest level since July 1990, according to a Bloomberg survey.

“Brent fell below $100 because of the economic outlook in Europe and China,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The picture in Europe looks horrible and the Chinese growth rate is slowing, which means oil demand isn’t going to rise as much as we expected.”

Brent oil for June settlement fell 72 cents to $99.91 a barrel on the London-based ICE Futures Europe exchange. The contract dropped to $98 earlier. May futures expired at $100.39 yesterday. The volume of all futures traded was 94 percent above the 100-day average at 4:51 p.m. New York time.

WTI crude for May delivery rose 1 cent to settle at $88.72 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 43 percent above the 100-day average. Prices earlier fell as much as $2.65 to $86.06.

Supply Increase

Prices gained after the American Petroleum Institute reported U.S. inventories fell 6.66 million barrels last week to 384.1 million, down from the highest level in almost 32 years. The May contract rose 24 cents to $88.95 in electronic trading at 4:51 p.m. It was $88.75 before the report was released at 4:30 p.m.

The front-month Brent grade traded at a premium of $11.19 to the May WTI contract.

Oil rebounded from the day’s lows as equities rallied. The Standard & Poor’s 500 Index (SPX) gained 1.4 percent and the Dow Jones Industrial Average rose 1.1 percent.

The global economy will expand 3.3 percent this year, less than the 3.5 percent forecast in January, after 3.2 percent growth in 2012, the Washington-based IMF said today, cutting its 2013 prediction a fourth consecutive time. The IMF sees the euro area shrinking 0.3 percent, compared with a 0.2 percent drop estimated in January, with France joining Spain and Italy in contracting.

Macro Economy

“As with many times in the past, oil has been used as the tool to express concerns about the macro economy,” said Amrita Sen, chief oil market analyst at Energy Aspects Ltd., a research company in London.

The ZEW Center for European Economic Research in Mannheim, Germany, said its German index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to 36.3 from 48.5 in March. Economists Comdty Equity surveyed by Bloomberg forecast a drop to 41.

Factory output in the U.S. fell 0.1 percent in March, figures from the Federal Reserve showed today in Washington, compared with 0.1 percent gain forecast in a Bloomberg survey.

China’s gross domestic product in the first quarter rose 7.7 percent from a year earlier, the Beijing-based National Bureau of Statistics said yesterday. That compares with the 8 percent median forecast in a Bloomberg survey and 7.9 percent in the prior quarter.

The International Energy Agency, the Organization of Petroleum Exporting Countries and the EIA cut their forecasts for 2013 global oil demand last week.

‘Important Marker’

“Falling below $100 was an important marker,” said Soozhana Choi, Deutsche Bank AG’s head of energy research in Washington. “The disappointing Chinese GDP data yesterday was a big catalyst, but Brent was already falling because of the downgrades in demand last week.”

U.S. gasoline stockpiles probably declined by 800,000 barrels, according to the median estimate of 11 analysts in the Bloomberg survey before tomorrow’s Energy Information Administration report.

The API collects stockpile information on a voluntary basis while the government requires that reports be filed with the EIA, the Energy Department’s statistical unit, for its weekly survey.

“The market is responding to a weaker macroeconomic outlook and not the fundamentals of oil,” said Julius Walker, global energy markets strategist at UBS Securities LLC. “U.S. crude supplies have been rising but product stocks are very tight.”

OPEC Basket

The basket of 12 crude grades used as a reference by OPEC also fell below $100 for the first time since July. The basket was at $98.56 yesterday, according to an e-mail from the group’s Vienna-based secretariat.

The decline brings prices in line with the target cited by Ali Al-Naimi, oil minister of Saudi Arabia, the world’s biggest crude exporter, who has described $100 as “reasonable” for consumers and producers.

“The Saudis have suggested that $100 is a good price,” O’Grady said. “Now that we’ve dipped below $100, you should start to hear rattling from some members of the cartel. There will be calls to cut production to boost prices.”

Implied volatility for at-the-money WTI options expiring in June was 24 percent, down from 25.8 percent yesterday.

Electronic trading volume on the Nymex was 666,635 contracts as of 4:35 p.m. It totaled 858,007 contracts yesterday, 47 percent above the three-month average. Open interest was 1.78 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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

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