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Oil Drops on U.S. Industrial Output, Euro-Area Exports

West Texas Intermediate oil fell after U.S. industrial production unexpectedly shrank and euro-area exports declined the most in five months, raising concern that fuel demand may weaken.

Futures pared the week’s gain as January factory output slipped while euro-area exports dropped in December. Oil extended the intraday low in late afternoon as equities fell on news that Wal-Mart Stores Inc. had the worst sales start to a month in seven years. The shares reached a four-month high of $98.24 on Jan. 30. The year-to-date low is $91.52.

“Industrial production shrank and the European data is keeping pressure on the oil market,” said Bill Baruch, a senior market strategist at in Chicago. “Crude hit the wall around $98. That’s a major resistance level and a line in the sand that everybody is looking at.”

Crude for March delivery slid $1.45, or 1.5 percent, to settle at $95.86 a barrel on the New York Mercantile Exchange. Trading was 33 percent above the 100-day average for the time of day at 3:26 p.m., after rising to above 100 percent of the average in early trading. Prices rose 14 cents this week, the ninth advance in 10 weeks.

Brent for April fell 34 cents, or 0.3 percent, to settle at $117.66 a barrel on the London-based ICE Futures Europe exchange. Trading was 9.4 percent below the 100-day average.

The European benchmark grade was at a premium of $21.25 a barrel to WTI futures for the same month. The difference was $20.10 yesterday, the narrowest since Feb. 5.

Resistance Level

“It appears to be some profit-taking and weekend position-squaring,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. A price of $98 “is a formidable resistance. It’s proven to be a tough level to break.”

U.S. industrial production dropped 0.1 percent last month, following a 0.4 percent gain in December, the Federal Reserve said. Analysts surveyed by Bloomberg had expected an increase of 0.2 percent.

“U.S. industrial production contracted and it could send oil down another $2,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Because these moves have been so violent, people have a hair-trigger on their positions.”

European Exports

Euro-area exports decreased a seasonally adjusted 1.8 percent in December, the biggest drop since July, data from the European Union’s statistics office showed.

“Concerns about the economy seem to be weighing on oil,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The market has become a bit heavy.”

Oil consumption in the U.S. will average 18.65 million barrels a day this year, the Energy Information Administration, the Energy Department’s statistics arm, said in a monthly report on Feb. 12. That’s down from the agency’s January estimate of 18.71 million.

Petroleum demand fell to 18.6 million barrels last year, down from 19 million in 2011, according to EIA data.

Oil also moved lower on a report that major powers plan to offer to ease sanctions against Iran barring trade in gold and other precious metals in return for the country’s steps to shut down the newly expanded Fordow uranium enrichment plant. The report from Reuters cited unidentified Western officials.

“The market does seem to react positively to any sign of any type of progress with Iran,” Flynn said.

Following Wal-Mart

Crude fell as much as 2.2 percent, following declines in Standard & Poor’s 500 Index, after internal Wal-Mart e-mails obtained by Bloomberg News showed the retailer’s sales were hurt as payroll-tax increases hit shoppers already battling a slow economy. The S&P 500 dropped as much as 0.5 percent, erasing an earlier gain of 0.2 percent.

Futures may decline in New York next week on an increase in U.S. crude supplies as refineries cut operating rates to perform maintenance, according to a Bloomberg survey of 40 analysts and traders.

Electronic trading volume on the Nymex was 641,497 contracts as of 3:27 p.m. It totaled 502,501 contracts yesterday, 3.9 percent below the three-month average. Open interest was 1.66 million, down less than 0.1 percent from Feb. 13’s record high.

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