Crude Drops to Three-Week Low as U.S. Growth May Slow

West Texas Intermediate crude fell to the lowest level in almost four weeks before a government report that may show slowing U.S. economic growth.

Futures trimmed a monthly advance that would be the biggest since August. U.S. gross domestic product probably expanded at a 1 percent annualized rate in the second quarter, compared with 1.8 percent in the previous three months, according to a Bloomberg survey before data are released tomorrow. Confidence among U.S. consumers declined more than forecast in July. WTI’s discount to Brent widened to a three-week high.

“There is concern about the U.S. economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People are expecting some of the numbers this week to not be so great, and are getting very nervous about demand in the second half of the year.”

WTI for September delivery declined $1.47, or 1.4 percent, to $103.08 a barrel on the New York Mercantile Exchange, the lowest settlement since July 3. The volume of all futures traded was 5.9 percent below the 100-day average for the time of day at 2:37 p.m. Prices are up 6.8 percent in July, set for a second monthly gain.

Brent for September settlement slid 54 cents, or 0.5 percent, to $106.91 a barrel on the London-based ICE Futures Europe exchange. Volume was 30 percent below the 100-day average. The European benchmark’s premium over WTI rose to $3.83, the widest since July 9. WTI rose above Brent on July 19 for the first time since 2010.

Spread Narrows

The gap between the two benchmarks has narrowed from more than $23 earlier this year as improved pipeline networks and the use of rail links eased a North American supply glut created by rising production of crude from shale formations.

“People are worried about tomorrow’s GDP number and oil demand,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We’ve had a pretty big rally. There is concern about whether these price levels are sustainable.”

The Commerce Department will release its report on second-quarter GDP tomorrow at 8:30 a.m. in Washington. Investors are watching to see whether Federal Reserve policy makers, who started a two-day meeting today, will begin reducing the central bank’s monthly bond buying and what form any further stimulus will take.

“You are definitely seeing some profit-taking ahead of tomorrow’s GDP,” said Bill Baruch, a senior market strategist at commodities trading firm in Chicago. “The bears are in control now.”

Consumer Confidence

The Conference Board’s index of U.S. consumer confidence decreased to 80.3 in July from 82.1 a month earlier, data from the New York-based private research group showed today. The median projection in a Bloomberg survey was 81.3.

The Labor Department is scheduled to report on U.S. unemployment Aug. 2. The rate stayed at 7.6 percent in June. Unemployment has been above 7 percent since November 2008.

“People are looking at macro pictures here,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “We saw consumer confidence is lagging.”

U.S. crude stockpiles probably fell by 2.45 million barrels last week to 361.7 million barrels, according to the median estimate of 12 analysts surveyed by Bloomberg before tomorrow’s Energy Information Administration report.

Gasoline Inventories

Gasoline inventories dropped by 1.5 million barrels and distillates rose by 450,000, according to the survey.

The American Petroleum Institute in Washington is due to release separate inventory data after 4:30 p.m. local time today. The industry group collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm, for its weekly survey.

The Bloomberg survey also showed that refineries may have reduced their operation rates by 0.2 percentage point. The utilization rate dropped to 92.3 percent in the week ended July 19, the EIA said last week.

“The fear is that refinery runs are going to be cut back,” Larry said.

Crude also slid as the dollar strengthened against its rivals, reducing oil’s investment appeal. The Bloomberg U.S. Dollar Index, which measures the greenback against 10 leading currencies, gained as much as 0.4 percent.

Implied volatility for at-the-money WTI options expiring in September was 22.3 percent, compared with 21.2 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 493,593 contracts as of 2:40 p.m. It totaled 428,816 contracts yesterday, 35 percent below the three-month average. Open interest was 1.84 million contracts.

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