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Crude Oil Declines on Concern Slowing Growth Will Curb Demand

Oil declined before data forecast to show that initial claims for unemployment benefits rose in the U.S., the world’s largest consumer of crude.

Crude erased gains of as much as 1.6 percent in New York and 1.4 percent in London as the dollar rebounded against the euro. Applications for unemployment insurance payments in the U.S. rose by 5,000 in the week ended Aug. 6 to 405,000, the Labor Department is forecast to say today, according to a Bloomberg News survey of economists.

“I see further downside to oil prices as austerity policies, monetary tightening and high prices contribute to slower economic growth,” said Christophe Barret, a London-based analyst at Credit Agricole CIB who predicted in June that oil would decline “significantly” this summer. He forecasts U.S. prices will average $81 a barrel in the fourth quarter.

Oil for September delivery was down $1.2, or 1.4 percent, at $81.77 a barrel on the New York Mercantile Exchange at 1 p.m. London time. It earlier rose as much as $1.56 to $84.45. Brent for September settlement declined $1.60, or 1.5 percent, to $105.08 a barrel on the ICE Futures Europe exchange in London.

The European benchmark traded at a premium of $23.31 to U.S. futures, having earlier widened to a record of $25.54.

Prices in London may rise to $130 in the next 12 months as producers such as Saudi Arabia curb output, Barclays Plc said.

Downside Protection

The Organization of Petroleum Exporting Countries’ 12 members boosted production by 400,000 barrels a day last month to an average of 30.07 million a day, the group said in a report on Aug. 9.

“The big downside protection for oil, relative to most other assets, is that OPEC can cut supply to restore the balance,” Barclays analysts including New York-based Helima Croft said in a report. “With so little spare capacity, Saudi Arabia is the world’s sole swing producer, giving it a level of control not seen since the heights of OPEC in the 1970s.”

The Energy Department said yesterday that total products supplied, a measure of demand, surged 652,000 barrels a day to 20.3 million, the highest level since Dec. 24. Gasoline stockpiles dropped 1.59 million barrels to 213.6 million.

“Yesterday’s DOE report was almost unanimously bullish,” Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania, said in a note to clients today. “We are looking for a recoupling of the dollar-oil link. Whether the Fed is aware of it or not, it likely just sowed the seeds of another rally in oil.”

The dollar was at $1.4161 against the euro as of 1:02 p.m. London time. Earlier it declined to $1.4275 after the Federal Reserve this week said it may expand stimulus. A weaker U.S. currency typically bolsters demand for dollar-priced assets such as oil.

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