Crude Oil Declines on Economic Outlook; Brent Slides

Oil fell for the third time in four days after Iran agreed to resume talks on its nuclear program and economic reports in the U.S. and China raised concern about fuel demand.

Futures slid as much as 1.6 percent as trading resumed after the Easter holiday weekend. International negotiations with Iran’s government are scheduled to start this week. China said inflation in March accelerated more than forecast, reducing the government’s leeway to boost the economy. The U.S. created 120,000 jobs in March, fewer than forecast and the smallest increase in five months, an April 6 report showed.

The American payroll data “raises the old question mark about the speed of the U.S. recovery,” and whether it will depress oil demand, Olivier Jakob, managing director of Switzerland-based consultant Petromatrix GmbH, said by telephone today.

Oil for May delivery fell $1.53, or 1.5 percent, to $101.78 at 7:58 a.m. in electronic trading on the New York Mercantile Exchange, after dropping as low as $101.61. The contract gained 1.8 percent to $103.31 on April 5, the latest settlement. Prices have gained 2.9 percent this year.

Brent crude for May settlement slid $1.63 to $121.80 a barrel on the London-based ICE Futures Europe exchange. The premium of the European benchmark to New York futures was at $20.02. Markets were closed in New York and London on April 6 for holidays.

Iran Talks

Iran and the five permanent United Nations Security Council members plus Germany will meet for nuclear talks starting April 14 in Istanbul, Michael Mann, a European Union spokesman, said yesterday. Their last meeting was in January 2011. The government in Tehran is under increasing economic pressure from trade, financial and energy sanctions, including U.S. penalties on banks that process payments for Iranian crude.

President Mahmoud Ahmadinejad said Iran will continue its nuclear course even if the whole world stands opposed, state-run Al Alam TV reported today.

Iranian officials “don’t want the oil price to come down,” said Jeremy Friesen, a commodity strategist at Societe Generale SA who forecast oil in New York will average $125 a barrel in the second half of the year. “The best strategy for them is to keep a high oil price.”

Brent crude may rise to $135 a barrel if there is no release from strategic petroleum reserves held by developed nations while sanctions are imposed on Iran, Friesen said in an interview with Bloomberg Television.

China Inflation

Consumer prices in China rose 3.6 percent from a year earlier after gaining 3.2 percent in February, the National Bureau of Statistics said on its website today. That was more than the median 3.4 percent estimate in a Bloomberg survey of 33 economists. Faster inflation may limit the government’s options to stimulate growth in the second-largest crude user.

“The high price of oil and commodities is still problematic in the West and the Far East,” said Jakob of Petromatrix.

In the U.S., job creation in March lagged behind the median estimate of 205,000 in a Bloomberg survey.

“The payroll number seems to be quite negative, so probably people are thinking there will be a slowdown in the economy in the U.S.,” said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. “It might be regarded as a downside risk for the oil market and also for oil demand.”

Stockpiles Rise

Speculators reduced bullish bets on oil by the most in more than three months as U.S. output grew to the highest level since 1999, boosting stockpiles, according to the Commodity Futures Trading Commission’s Commitments of Traders report on April 6. Money managers reduced net long positions, or wagers on rising prices, by 10 percent in the seven days ended April 3, for the biggest drop since Dec. 20, the report showed.

Hedge funds and other money managers cut bullish bets on Brent crude by 11,809 contracts in the week ended April 3, according to data from ICE exchange.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 139,074 lots, ICE said today in its weekly Commitment of Traders report.

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