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Oil Futures Drop on Speculation Europe Economy Weakening

Oil fell in New York on speculation data from Europe and the U.S. will signal an economic slowdown that threatens to cut demand.

Futures slipped as much as 1.3 percent from July 3. Factory orders in Germany, the euro zone’s biggest economy, probably dropped 6 percent in May from a year ago, a Bloomberg News survey of economists showed before a report today. The U.S., the world’s largest crude user, may have had its weakest quarter for employment in more than two years, according to analysts polled before data today and tomorrow. London-traded Brent decreased yesterday amid signs a strike by oil workers in Norway may end.

“The key factor to look at is the payroll figures on Friday,” said Dominic Schnider, the global head of non-traditional assets at UBS AG’s wealth-management unit, who sees Brent crude falling back to $90 a barrel. “This is the most serious factor for the oil market to consider. The market isn’t going to react positively to a drop” in German manufacturing.

Oil for August delivery declined as much as $1.16 to $86.50 a barrel in electronic trading on the New York Mercantile Exchange and was at $86.96 at 2:34 p.m. Singapore time. There was no floor trading yesterday because of the U.S. Independence Day holiday and transactions since the July 3 closed will be booked with today’s trades for settlement purposes. Prices are down 12 percent this year.

Brent oil for August settlement was at $99.42 a barrel, down 35 cents, on the London-based ICE Futures Europe exchange. It dropped 0.9 percent yesterday to $99.77. The European benchmark’s premium to West Texas Intermediate was at $12.45, from $12.11 yesterday.

Supply Shocks

U.S. employers increased payrolls by 90,000 workers last month after a 69,000 gain in May, according to the median forecast of 59 economists surveyed by Bloomberg ahead of Labor Department figures due tomorrow. Excluding government agencies, private hiring may have climbed by 100,000, concluding the smallest quarterly rise since the first three months of 2010.

New York crude may trade “between $70 and $80 a barrel if we don’t see an improvement in the demand side,” David Lennox, an analyst at Fat Prophets in Sydney, said in a Bloomberg Television interview today. “Supply-side shocks have really been what have driven the oil price higher.”

Brent slid yesterday after Norway’s Oil Industry Association said it’s willing to negotiate to end a 10-day strike as quickly as possible. The labor dispute, the first industry-wide by energy workers since 2004, has affected as much as 250,000 barrels a day of output, including some crude that provides the physical basis for the European futures contract.

German Services

A gauge of German services fell to 49.9 in June, London-based Markit Economics reported yesterday, with a figure below 50 indicating contraction. The European Union accounted for 15.9 percent of global oil demand in 2011, according to BP Plc.

An EU embargo on Iran entered into full force on July 1 after exemptions on some contracts and insurance ended. Iran’s crude exports may drop to about 1 million barrels a day, Goldman Sachs Group Inc. said in a report July 2. The country produced 3.2 million barrels a day in June, according to Bloomberg estimates.

European and Iranian officials examined each side’s proposals for settling the dispute over Iran’s nuclear program, the EU said after talks in Istanbul yesterday. A follow-up meeting will be held, the EU said in e-mailed statement.

“Iran will try to keep these issues alive as long as possible in order to keep the oil price higher,” said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo, who forecasts crude to increase 25 percent by the end of 2012 as the global economy stabilizes. “I don’t really think the issues will be resolved in at least half a year.”

Oil Stockpiles

U.S. crude stockpiles probably declined 2.3 million barrels last week, according to a Bloomberg survey before an Energy Department report today. Inventories may have dropped as Tropical Storm Debby delayed tanker arrivals and reduced output at Gulf of Mexico platforms, the respondents said.

The industry-funded American Petroleum Institute stated July 3 that crude supplies dropped by 3 million barrels to 382.6 million. Gasoline inventories declined by 1.4 million barrels, according to data from the API.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

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