West Texas Intermediate crude slipped from a 15-month high as more Americans than expected filed for unemployment benefits and the International Energy Agency predicted global supply will outstrip demand growth.
Prices dropped the most in almost three weeks after the Labor Department said jobless claims rose to a two-month high in the week ended July 6. Oil production in non-OPEC countries will expand at the fastest pace in 20 years in 2014, the IEA said. Oil has jumped 8.6 percent this month on concern that Egypt’s political upheaval will disrupt Middle East exports.
“You had a weak jobs report and it’s not supportive for demand,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “After the incredible run, we don’t have that next piece of bullish news to keep the market higher. We are taking some of the Egypt premiums out of the price.”
WTI for August delivery declined $1.61, or 1.5 percent, to settle at $104.91 a barrel on the New York Mercantile Exchange. It climbed to $107.45 a barrel earlier, the highest intraday price since March 27, 2012. The volume of all WTI futures traded was 59 percent above the 100-day average for the time of day at 3:37 p.m.
Brent for August settlement slid 78 cents, or 0.7 percent, to end the session at $107.73 a barrel on the London-based ICE Futures Europe exchange. Volume was 22 percent above 100-day average.
WTI’s discount to Brent, the European benchmark, widened to $2.82, based on settlement prices. It shrank in intraday trading to as little as $1.32 a barrel, the smallest gap since Nov. 15, 2010. The retreat in WTI futures allowed the grade’s discount to North Sea Brent to widen again.
WTI’s 14-day relative strength index of front-month contracts settled above 70 a fifth day, data compiled by Bloomberg showed. Some investors start selling contracts when the reading crosses that threshold, seen as a sign that speculative buying has driven prices unreasonably high.
“The market is technically overbought,” Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut, said in an e-mail.
First-time jobless claims rose by 16,000 to 360,000 last week, the Labor Department said. The median forecast of 47 economists surveyed by Bloomberg called for a drop to 340,000. The four-week moving average, a less volatile measure than the weekly figures, climbed to 351,750 last week from 345,750.
The U.S., the world’s biggest oil consuming country, used about a fifth of the world’s oil last year, according to BP Plc’s Statistical Review of World Energy.
U.S. petroleum consumption dropped 1.15 million barrels a day, or 5.7 percent, in the week ended July 5 to 19.2 million, the first decline in four weeks, the Energy Information Administration reported yesterday. That’s also the biggest decrease in barrels since Aug. 17.
“We know that there isn’t much demand growth,” Flynn said. Prices are having “a correction after the big rally.”
World oil consumption will climb by 1.2 million barrels a day next year, the Paris-based IEA said in its first monthly report with forecasts for 2014. Supplies from outside the Organization of Petroleum Exporting Countries will jump by 1.3 million barrels a day amid booming output in North America, curbing the need for crude from the 12-member producer group, according to the report.
“The IEA report is highlighting a bearish bias relative to the supply-demand balance as they introduce for the first time a view for 2014,” said Harry Tchilinguirian, BNP’s head of commodity markets strategy in London. “We are seeing some technical correction after strong gains yesterday.”
Oil’s advance was limited as the dollar fell to a two-week low against its major rivals and U.S. stocks surged after Federal Reserve Chairman Ben S. Bernanke called for maintaining monetary stimulus.
The Dollar Index, which measures the greenback against six other major currencies including the euro, tumbled as much as 1.9 percent to 82.418, the lowest level since June 25. A weaker dollar increases oil’s appeal as an investment alternative.
The Standard & Poor’s 500 Index rose as much as 1.4 percent to 1,675.08, the most since May 22.
WTI surged above $100 a barrel on July 3 for the first time since September as protests in Egypt heightened concern that unrest in the most populous Arab country will spread and disrupt Middle Eastern oil supplies. Shipping traffic through the Suez Canal is continuing normally today, with 43 vessels transiting the waterway, according to the Suez Canal Authority.
The majority of crude oil transiting the Suez Canal travels northbound toward markets in the Mediterranean and North America. A combined 2.24 million barrels a day of oil were shipped from the Red Sea to Europe and North America in 2011 via the Suez Canal and the Suez-Mediterranean, EIA data show.
Implied volatility for at-the-money WTI options expiring in September was 22.3 percent, compared with 23.9 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 859,378 contracts as of 3:38 p.m. It totaled 1.18 million contracts yesterday, the most since Nov. 16, 2011, and 79 percent above the three-month average. Open interest was 1.83 million contracts.