Oil Declines to Seven-Week Low on Plosser Comments

Oil fell to a seven-week low as Federal Reserve Bank of Philadelphia President Charles Plosser said a new stimulus program probably won’t boost growth.

Prices dropped 0.6 percent after Plosser said bond buying announced by the Fed probably won’t spur expansion or hiring. Futures surged to a 2012 high of $100.42 a barrel on Sept. 14, a day after the Federal Open Market Committee said it will undertake a third round of quantitative easing.

“Worries about the economy and our ability to grow have been weighing on the market,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “We’ve fallen quite a bit from $100 on concern that quantitative easing won’t be enough.”

Crude oil for November delivery dropped 56 cents to $91.37 a barrel on the New York Mercantile Exchange, the lowest settlement since Aug. 2. The contract rose to $93.20 earlier. Prices are down 7.5 percent this year.

Prices were little changed after the industry-funded American Petroleum Institute reported oil inventories increased 335,000 barrels to 361.8 million last week. Futures fell $1.19, or 1.3 percent, to $90.74 a barrel at 4:45 p.m. Prices were at $90.96 before the report was released at 4:30 p.m.

Brent for November settlement rose 64 cents, or 0.6 percent, to $110.45 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate widened to $19.08, the most since Aug. 16.

Bond Purchases

The Fed said Sept. 13 that it would purchase mortgage-backed securities at a pace of $40 billion per month until labor markets improve substantially.

“Conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility,” Plosser said in the text of a speech prepared for delivery today in Philadelphia.

The Standard & Poor’s 500 Index erased gains after Plosser’s comments.

“His comments did have an effect on the market and got people to sell and break some support levels and push lower,” said Joe Posillico, senior vice president of energy derivatives at Jefferies Bache LLC in New York.“The equities market sold off right after he made those comments and this is ironic because this is where the stock market was trading when they announced QE3.”

Prices also fell on speculation that the government may report tomorrow that supplies increased a third week through Sept. 21.

Inventory Projection

The Energy Department report will probably show that inventories of crude climbed 1.9 million barrels last week, according to the median of responses from 11 analysts surveyed by Bloomberg. Supplies climbed 8.53 million barrels the previous week to 367.6 million, 8.4 percent higher than a year earlier.

“People are expecting another build tomorrow and nobody wants to buy oil,” said Bill Baruch, senior market strategist at Iitrader.com in Chicago.

West Texas Intermediate oil traded in New York rose as much as 1.4 percent earlier as confidence among U.S. consumers rose.

The early advance took place after the Conference Board’s index of consumer optimism climbed to 70.3 in September, a seven-month high. The figure exceeded the most optimistic projection of 73 economists surveyed by Bloomberg, whose median forecast called for the confidence gauge to reach 63.1.

Oil also climbed earlier this month on concern that tension in the Middle East and North Africa will disrupt supply.

Obama Speech

President Barack Obama pledged in a speech to world leaders today that the U.S. is committed to preventing Iran from obtaining a nuclear weapon and said the time for resolving the issue through diplomacy “is not unlimited.” Iran was the Organization of Petroleum Exporting Countries’ third-biggest producer in August, according to a Bloomberg survey of companies, producers and analysts.

Obama told the annual meeting of the United Nations General Assembly in New York that a nuclear-armed Iran would imperil Israel, ignite a regional arms race and destabilize the global economy.

“Make no mistake: A nuclear-armed Iran is not a challenge that can be contained,” Obama said in the text of his remarks. “The United States will do what we must to prevent Iran from obtaining a nuclear weapon.”

Iranian President Mahmoud Ahmadinejad said in an interview with CNN yesterday that his nation will defend itself if attacked by Israel. A war started by Israel would be backed by the U.S., he said Sept. 23 on state-run Al-Alam television, Fars, Iran’s state-run news agency, reported.

Iranian Rhetoric

“The reaction to the latest barrage of rhetoric from Iran has been muted,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Countries in the Middle East and North Africa were responsible for 36 percent of global oil production and held 52 percent of proved reserves in 2011, according to BP Plc’s Statistical Review of World Energy.

Electronic trading volume on the Nymex was 384,411 contracts as of 4:46 p.m. Volume totaled 363,835 contracts yesterday, the lowest level since May 25. Open interest was 1.56 million.

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