Oil Drops to Eight-Month Low on U.s. Retail Sales

Oil tumbled to an eight-month low after a report showed that U.S. retail sales weakened and as borrowing costs in Germany and Italy increased.

Futures fell 0.8 percent as Commerce Department figures showed that purchases decreased for a second month. The yield on German and Italian debt climbed in auctions before a Greek election on June 17. OPEC will probably leave its output target unchanged at a meeting tomorrow, two Middle East delegates said.

“The retail sales numbers today were disappointment,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “The markets continue to be battered by the latest headlines from Europe. We’re seeing crisis creep ahead of the Greek elections.”

Crude oil for July delivery dropped 70 cents to $82.62 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 6. Prices are down 16 percent this year.

Brent oil for July settlement slipped 1 cent to end the session at $97.13 a barrel on the London-based ICE Futures Europe exchange. July futures expire tomorrow. The more actively traded August contract fell 25 cents, or 0.3 percent, to $96.72.

The Standard & Poor’s 500 Index and Dow Jones Industrial Average each declined 0.9 percent.

Retail sales slipped 0.2 percent last month, following a similar decline in April that was previously reported as a gain. May’s decline matched the median forecast of 79 economists surveyed by Bloomberg

‘Softening Demand’

“The retail sales numbers point to softening demand,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

Last weekend, Spain became the fourth euro member -- following Greece, Ireland and Portugal -- to seek a bailout since the debt crisis began almost three years ago, after its borrowing costs approached euro-era highs.

Greeks are voting for a second time in six weeks after a May 6 ballot failed to yield a government.

Futures rose as much as 0.8 percent in intraday trading after the Energy Department said gasoline supplies fell 1.72 million barrels to 201.8 million last week. Stockpiles were forecast to gain 1.4 million barrels, according to the median of 12 analyst projections in a Bloomberg survey.

Gasoline output surged 5.5 percent to 9.55 million barrels a day, the highest level since August. It was the biggest one-week gain since December 2010. U.S. exports of the motor fuel, which climbed 62 percent to a record 479,000 barrels a day last year, averaged 403,000 barrels over the four weeks ended June 8, according to the department.

Refineries operated at 92 percent of capacity, the most since August 2007, the report showed.

Refinery Activity

“Gasoline supplies declined despite the increase in operating rates, which is a signal that for some reason 92 percent of capacity is still not high enough,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “That something is probably exports. Refiners are producing more and a lot of that’s being exported.”

Crude stockpiles declined 191,000 barrels to 384.4 million in the week ended June 8, the Energy Department report showed. Inventories were forecast to fall 1.5 million barrels. Supplies rose to 384.7 million barrels in the week ended May 25, the highest level since July 1990.

“It looks like the market’s reaction to the inventory data has run its course and attention will quickly pivot to the OPEC meeting,” Evans said. “The members differ on what to do so chances are they will announce a rollover.”

OPEC Disagreement

Saudi Arabia, Kuwait, Qatar and the United Arab Emirates would like to raise the output ceiling by 500,000 barrels a day, an Organization of Petroleum Exporting Countries delegate said yesterday. Iran, facing a European Union embargo on its oil exports from July 1, and Venezuela have been joined by Iraq and Angola in warning that supply is excessive.

OPEC oil ministers meet tomorrow in Vienna.

“This should be a very contentious meeting,” said Tom Essaye, president of Kinsale Trading in Palm Beach, Florida. “The Saudis want to see higher output while the Iranians and Venezuelans want to see a substantial cut.”

The International Energy Agency said OPEC cut crude production last month, ending a seven-month run of increases, as Saudi Arabia and Iraq reduced supplies.

The 12 members of OPEC pumped 31.86 million barrels a day of crude last month, compared with 31.89 million in April, the Paris-based IEA said in its monthly Oil Market Report. That exceeds the group’s 30 million output ceiling set in December and is still “flirting with four-year highs,” the agency said.

Abdalla El-Badri, OPEC’s secretary-general, said today in Vienna that “there is some oversupply in the market” for oil.

Electronic trading volume on the Nymex was 540,271 contracts as of 3:43 p.m. Volume totaled 603,181 contracts yesterday, 7.6 percent above the three-month average. Open interest was 1.46 million.

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