Oil Wipes Out All of 2010's Gains on Signs Recovery Is Stalling

Oil fell to a five-week low in New York, erasing all of its gains for 2011, on growing evidence the U.S. economic recovery is stalling, sapping demand in the world’s biggest crude consumer.

Futures dropped as a U.S. government report showed limited improvement in the labor market. Crude stockpiles advanced for a second week, according to Energy Department data yesterday. Oil rose earlier today after the Wall Street Journal reported that three former senior officials at the Federal Reserve said the central bank should consider a new round of stimulus.

“We’re clearly in a soft patch,” said Thina Saltvedt, an analyst at Nordea Bank AB in Oslo, who forecasts Brent will be capped at $118 a barrel this quarter. “Gasoline demand is slowing, with high unemployment consumers are still a bit skeptical. If we see stronger growth signals, prices will move up but we haven’t seen that yet.”

Crude for September delivery declined as much as $1.18 a barrel, or 1.3 percent, to $90.75 a barrel in electronic trading on the New York Mercantile Exchange. That’s the lowest since June 28. It was at $91.26 at 1:51 p.m. London time. The contract is down 0.1 percent this year, having gained as much as 26 percent on May 2.

Brent for September settlement on the London-based ICE Futures Europe exchange was 1.3 percent lower at $111.80 a barrel. For the year to date, Brent is up 18 percent. The European benchmark contract was at a $20.51 premium to U.S. futures, after reaching a record $22.67 on Aug. 2.

U.S. Stockpiles

U.S. crude inventories rose 950,000 barrels in the week ended July 29 to 354.9 million barrels, the Energy Department report showed.

“Market participants seem to be concerned about growth prospects in the U.S.,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicts crude will average $98 a barrel in the third quarter. Reports of stimulus “may give a short-term reprieve to prices and forecast demand but if these weak numbers keep coming out it’s going to swamp any positive sentiment around further quantitative easing,” he said.

Gasoline stockpiles climbed 1.7 million barrels to 215.2 million, the highest since April 1. Supplies were forecast to increase 250,000 barrels, based on the median estimate from analysts surveyed by Bloomberg News. Distillate fuel inventories, a category that includes heating oil and diesel, increased 409,000 barrels to 152.3 million.

Bollinger Rebound

Crude in New York may rebound after prices reached technical support along the lower Bollinger Band yesterday, according to data compiled by Bloomberg. This indicator is at $90.62 a barrel today and the next level, the middle Bollinger Band, is at $95.84. Prices tend to change direction when they fail to breach chart support or resistance.

Applications for jobless benefits decreased 1,000 in the week ended July 30 to 400,000, the fewest in almost four months, the Labor Department said in Washington. Economists forecast claims to reach 405,000, according to the median estimate in a Bloomberg News survey. The four-week average also declined to the lowest level since April.

Tropical Storm Emily will pick up speed, moving northwest as it continues on a path that could take it to Florida by this weekend, according to an advisory from the U.S. National Hurricane Center.

Emily, with top winds of 50 miles (80 kilometers) per hour, was 100 miles south-southeast of Port-au-Prince, Haiti, and moving west-northwest at 7 mph, according to an advisory posted by the center before 5 a.m. in Miami. The center of the storm