Oil Falls to Eight-Month Low on U.S. Stockpiles, China

Oil dropped to the lowest price in eight months in New York after U.S. stockpiles unexpectedly increased and a report signaled China’s manufacturing will shrink this month.

Front-month futures slipped as much as 1.7 percent after declining 2.7 percent yesterday. U.S. crude supplies rose 2.9 million barrels last week to 387 million, the highest level since July 1990, an Energy Department report showed. Federal Reserve policy makers lowered the outlook for U.S. economic growth and employment, while an index of Chinese manufacturing by HSBC Holdings Plc and Markit Economics pointed to a contraction for an eighth month. The U.S. and China are the world’s biggest oil consumers.

“The Fed comments combined with the inventory numbers give a sense that the demand destruction is still there,” said Jonathan Barratt, chief executive officer of Barratt’s Bulletin, a commodity-markets newsletter in Sydney, who forecasts that New York crude has support at $80 a barrel.

Oil for August delivery slid as much as $1.34 to $80.11 a barrel in electronic trading on the New York Mercantile Exchange, the lowest price for a front-month contract since Oct. 6. It was at $80.42 at 2:41 p.m. Singapore time. Futures are down 19 percent this year.

Brent oil for August settlement decreased 51 cents, or 0.6 percent, to $92.18 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium to West Texas Intermediate of $11.77 after closing at $11.24 yesterday, the lowest level since January.

China Manufacturing

Oil in New York has technical support along its 200-week moving average, around $80.63 a barrel. Futures halted last week’s decline near that indicator. Buy orders tend to be clustered close to chart-support levels.

An eighth month of contraction in China’s manufacturing would match the streak during the global financial crisis. The 48.1 preliminary reading for the purchasing managers’ index released today compares with a final 48.4 for May. If confirmed on July 2, it would equal the run of below-50 readings from August 2008 to March 2009.

National Australia Bank Ltd. trimmed its oil price forecasts for WTI and Brent citing weaker economic growth in China and the U.S., as well as Europe’s debt crisis. The bank cut its estimate for New York crude in the second quarter to $94 a barrel from $100, and Brent to $111 from $115, in an e-mailed note today. It also cut its outlook for the rest of the year and 2013.

Fuel Demand

U.S. crude inventories increased in the week ended June 15 as production and imports gained, while total fuel demand fell 4.2 percent, the biggest decrease since March, the Energy Department report showed yesterday. Oil stockpiles were forecast to decline 1.3 million barrels, according to the median estimate of 11 analysts in the Bloomberg survey.

Crude output climbed 117,000 barrels a day to 6.35 million, the highest level since February 1999. Imports rose 328,000 barrels a day to 9.45 million, the highest since March.

Gasoline stockpiles increased 943,000 barrels. They were forecast to increase 1 million barrels, according to the survey. Distillate supplies, a category that includes diesel and heating oil, climbed 1.16 million barrels, compared with a projected 1 million barrel gain.

OPEC Quotas

If oil falls below $80, OPEC may start to “murmur” about revising production quotas, according to Barratt.

The Organization of Petroleum Exporting Countries resolved to adhere more closely to its output limit of 30 million barrels a day at a meeting in Vienna on June 14. The decision gives flexibility to Saudi Arabia to cut output depending on demand, former Algerian Oil Minister Chakib Khelil said yesterday in a Bloomberg Television interview.

Fed officials lowered their estimate for growth in gross domestic product this year to a range of 1.9 percent to 2.4 percent, compared with an April forecast of 2.4 percent to 2.9 percent. The unemployment rate will end the year at 8 percent to 8.2 percent, up from a previous range of 7.8 percent to 8 percent, they said.

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