Oil Falls as German Manufacturing Output ContractsMark Shenk
Oil dropped as German manufacturing output unexpectedly contracted in March, signaling the euro-zone debt crisis is slowing growth in the region’s biggest economy.
Futures fell 1.1 percent after a purchasing managers’ index for Germany’s manufacturing slipped to 48.9 this month. The median forecast by economists called for a reading of 50.5, according to a Bloomberg survey. The European Central Bank said today it may cut Cypriot banks off from emergency funds after March 25 as the country’s president worked on a new plan to obtain a European bailout.
“The concerns about Europe continue to weigh on the market,” said Mike Wittner, head of oil-market research at Societe Generale SA in New York. “This is a risk-off day across the board. This move has nothing to do with the fundamentals of the oil market.”
Crude oil for May delivery declined $1.05 to settle at $92.45 a barrel on the New York Mercantile Exchange. The April contract expired yesterday at $92.96. The volume of all futures traded was 21 percent below the 100-day average at 3:37 p.m.
Brent oil for May settlement fell $1.25 to end the session at $107.47 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 7.2 percent lower than the 100-day average.
The European benchmark grade ended the day at a $15.02 premium to West Texas Intermediate crude traded in New York. The gap narrowed to $14.93 on March 19, the lowest level at settlement since July.
“The German PMI data is clearly bearish for the oil market,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “If the Germans aren’t making things, where’s European demand going to come from? It’s the most important economy on the continent.”
Total euro-area services and manufacturing output slipped more than economists estimated in March. A composite index based on a survey of purchasing managers in both industries fell to 46.5 from 47.9 in February, London-based Markit Economics said today. Economists had forecast a reading of 48.2, according to the median of 23 estimates in a Bloomberg survey.
Cypriot President Nicos Anastasiades is trying to forge an agreement on how to stave off financial collapse. The island country’s government may propose a revamped bank-deposit levy to raise 5.8 billion euros ($7.5 billion) after lawmakers rejected a previous measure, a Cypriot official said.
“We’re going to continue to follow every development of the Cyprus story,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Cyprus is an example of what ails the euro zone. Some of the concern seems overdone because the collapse of Cyprus isn’t going to bring Europe’s economy crashing down.”
The country’s central bank declared that banks would stay shut for another two days, effectively barring Cypriots from access to their accounts until March 26, when lenders are scheduled to reopen after a local holiday.
“There’s broad-based concern about Cyprus and the euro-zone as a whole,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “They will probably find a solution to the problems on Cyprus but it might not be neat or quick.”
Fewer Americans than forecast filed jobless claims last week. Other reports showed sales of previously owned U.S. homes rose to the highest level in more than three years in February and a gauge of leading economic indicators topped estimates for last month.
The dollar rose as much as 0.4 percent to $1.288 per euro, curbing the appeal of raw materials denominated in the U.S. currency as an investment. The Standard & Poor’s 500 Index dropped 0.6 percent and the Dow Jones Industrial Average slipped 0.4 percent.
“The euro is selling off and oil is going along for the ride,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania.
Total U.S. fuel demand dropped 0.9 percent to 18.4 million barrels a day in the four weeks ended March 15, an Energy Information Administration report showed yesterday. Gasoline consumption fell 0.3 percent over the period to 8.48 million barrels a day.
“There is growing evidence that the U.S. economy is improving,” Lynch said. “The market is still stuck in a range and won’t rise much higher until we see evidence that the U.S. economic upturn is having an impact on demand.”
U.S. crude supplies dropped by 1.31 million barrels to 382.7 million last week, the first decline in two months, the EIA report showed. Crude production fell 9,000 barrels a day to 7.15 million in the seven days ended March 15. Output reached 7.16 million barrels a day in the week ended March 8, the highest level since July 1992.
Implied volatility for at-the-money WTI crude options expiring in May was at 18.3 percent, an increase from 17.99 percent yesterday. The figures have slipped from 24.7 percent on Feb. 21.
Electronic trading volume on the Nymex was 372,840 contracts as of 3:37 p.m. It totaled 450,878 contracts yesterday, 17 percent below the three-month average. Open interest was 1.64 million contracts.