Oil Falls as Japan Recession Reduces Fuel Demand Outlook

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West Texas Intermediate and Brent crudes dropped after Japan, the world’s third-largest oil consuming country, unexpectedly slipped into a recession.

Japan’s economy shrank an annualized 1.6 percent in the third quarter, a second successive drop. Iran’s oil minister is preparing to visit the United Arab Emirates this week, according to Shana, the Tehran-based ministry’s news service. The Organization of Petroleum Exporting Countries is scheduled to meet Nov. 27.

Brent has declined 31 percent from a June peak as leading OPEC members resisted calls to cut output and instead reduced some export prices while U.S. production climbed to the highest level in more than three decades. Venezuela, Libya and Ecuador have asked for action to support crude as the 12-member group prepares to meet in Vienna.

“The new Japanese data certainly doesn’t help the demand perception,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “OPEC will remain in the foreground, putting downward pressure on the market for the foreseeable future, until we get definitive word that they are going to cut output.”

WTI for December delivery fell 18 cents to settle at $75.64 a barrel on the New York Mercantile Exchange. Futures touched $73.25 Nov. 14, the lowest intraday price since Sept. 21, 2010. The volume of all futures traded was 2.6 percent below the 100-day average at 2:53 p.m. Prices are down 23 percent this year.

Eighth Week

Brent for January settlement slipped 10 cents to end the session at $79.31 a barrel on the London-based ICE Futures Europe exchange. Volume was 37 percent lower than the 100-day average. The European benchmark closed at a $3.67 premium to WTI for the same month.

Front-month Brent futures slid an eighth week through Nov. 14, the longest run of declines since the contract began trading in 1988.

The Japanese economy, the world’s third largest, was projected to post a 2.2 percent gain in the last quarter, according to a Bloomberg survey.

“The Japanese headline is the biggest economic story today and it adds to bearish sentiment about outlook,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone.

Industrial production in the U.S. unexpectedly dropped in October. Output fell 0.1 percent after a 0.8 percent increase in September that was smaller than previously estimated, figures from the Federal Reserve in Washington showed today. The median forecast in a Bloomberg survey of 83 economists projected a 0.2 percent gain.

Minsters Travel

Iran’s OPEC Governor Hossein Kazempour, national representative Mehdi Asali and the country’s head of the oil contracts committee Mehdi Hosseini will accompany minister Bijan Namdar Zanganeh to the U.A.E., Iran’s oil ministry said.

Iraqi President Fouad Masoum and Libyan Prime Minister Abdullah al-Thani flew to Riyadh last week for separate talks with Saudi officials. Rafael Ramirez, Venezuela’s foreign minister and representative to OPEC, held talks in Algeria and Qatar, while Saudi Arabia’s Ali Al-Naimi toured Latin America.

“I don’t care who’s jetting where, it is just background noise,” Yawger said. “Until we hear from the Saudis, prices will remain under pressure. If they can’t come to an agreement or decide to do nothing in Vienna, there will be further downward pressure after the meeting.”

Saudi Arabia

Saudi Arabia probably favors maintaining production, according to Barclays Plc. Al-Naimi’s comments on Nov. 12 that the kingdom’s oil policy hasn’t changed, along with “the tone on demand recovery” in OPEC’s monthly report, signals that doing so is a preferred option to cutting output, analysts including Miswin Mahesh in London said in a report today.

Commodities also dropped after the dollar increased against the euro. The strengthening dollar reduced the appeal of raw materials priced in the U.S. currency as a store of value.

Speculators became more bullish on WTI for the first time in three weeks, judging that a slump in prices will force OPEC to act. The net-long position in the New York contract rose 8.7 percent in the week ended Nov. 11, U.S. Commodity Futures Trading Commission data show. Long holdings rebounded from the lowest level in 17 months while short bets contracted.

Hedge funds and other money managers raised bullish bets on Brent for a third week, increasing by 9,783 contracts in the week ended Nov. 11, ICE said today in its weekly Commitments of Traders report.

Gasoline futures slipped 1.62 cents, or 0.8 percent, to settle at $2.0263 a gallon in New York. Ultra-low sulfur diesel fell 1.22 cents, or 0.5 percent, to close at $2.4039.

Regular gasoline at U.S. pumps fell to the lowest level since December 2010. The average retail price slipped 0.8 cent to $2.885 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

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