Bloomberg News

Oil Falls as U.S. Jobless Rate Climbs to Highest Level This Year

June 03, 2011

June 3 (Bloomberg) -- Crude oil fell, capping the biggest weekly decline in a month, as the U.S. jobless rate climbed to the highest level this year, adding to concern that a slower economic recovery will curb oil demand.

Oil dropped 0.2 percent after the Labor Department said payrolls rose by 54,000 in May, the smallest gain in eight months. The median forecast in a Bloomberg News survey called for a 165,000 increase. The unemployment rate advanced to 9.1 percent from 9 percent a month earlier.

“The economy is slowing down, so oil demand is going to slow down,” said Carl Larry, director of energy derivatives and research at Blue Ocean Brokerage LLC in New York. “That’s going to be your main concern.”

Crude oil for July delivery fell 18 cents to settle at $100.22 a barrel on the New York Mercantile Exchange. Prices declined 0.4 percent this week, the biggest drop since the five days ended May 6.

Brent crude for July delivery rose 30 cents, or 0.3 percent, to $115.84 a barrel on the London-based ICE Futures Europe exchange.

The European benchmark contract traded at a premium of $15.62 a barrel to U.S. futures, up 48 cents from yesterday. The difference between front-month contracts in London and New York reached a record $19.54 on Feb. 21. The spread averaged 76 cents last year.

Economic Outlook

Oil may fall in New York next week amid signals that jobs growth and manufacturing in the U.S., the world’s biggest oil- consuming country, are struggling to rebound, a Bloomberg News survey showed.

Sixteen of 34 analysts, or 47 percent, forecast oil will decline through June 10. Eight respondents, or 24 percent, predicted prices will climb and 10 estimated little change.

“There is a lot of pessimism over the economy, and the jobs report feeds into it,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts.

Factories in the U.S. cut payrolls in May for the first time in seven months, a Labor Department report showed. Employment at retailers, leisure and hospitality companies and state and local governments also decreased during the month.

Jobs at factories declined by 5,000, compared with the survey forecast of a 10,000 increase. Private hiring, which excludes government agencies, rose 83,000 last month. It was projected to climb to 170,000, the survey showed.

Slower Growth

U.S. economic growth slipped to a 1.8 percent annual pace in the first three months of the year from 3.1 percent in the prior quarter, revised figures from the Commerce Department showed last week.

“The jobs report is really putting a damper on the momentum,” said Phil Flynn, an analyst with PFGBest in Chicago. “Demand is obviously going to be weak, and supply has been at a very high level.”

Crude oil inventories rose 2.88 million barrels to 373.8 million in the week ended May 27, the highest level since May 2009, the Energy Department said yesterday.

Supplies of gasoline increased for a fourth week, climbing by 2.55 million barrels to 212.3 million, the department said.

Gasoline futures fell 2.54 cents, or 0.9 percent, to $2.9931 a gallon on the Nymex.

The Organization of Petroleum Exporting Countries will respond at its June 8 conference in Vienna if the world needs more crude, Saudi Arabian Oil Minister Ali Al-Naimi said yesterday.

OPEC Production

OPEC will probably maintain production levels for an eighth consecutive meeting, resisting calls to ease the pressure of $100-a-barrel oil on the global economy, according to a survey of analysts by Bloomberg News.

OPEC’s output rose 165,000 barrels, or 0.6 percent, to average 28.895 million barrels a day in May, according to a Bloomberg News survey of oil companies, producers and analysts. Saudi Arabia bolstered production by 75,000 barrels, or 0.8 percent, to 8.925 million barrels a day, the highest level since October 2008.

Crude pared earlier losses as the dollar weakened to the lowest level against the euro in almost a month after Greece was approved for more assistance to address its debt crisis.

European Union and International Monetary Fund officials agreed to pay the next installment to Greece under last year’s 110 billion-euro ($161 billion) bailout.

Euro Strengthens

The euro advanced 0.9 percent to $1.4618 as of 3:14 p.m. in New York after climbing to $1.4643, the strongest level since May 5. A decline in the U.S. currency makes dollar-priced assets such as crude appear cheaper to investors using other currencies.

“The weaker dollar does offer a little bit of support to oil,” said Barber.

Oil volume in electronic trading on the Nymex was 640,248 contracts as of 3:14 p.m. in New York. Volume totaled 785,925 yesterday, 17 percent above the average of the past three months. Open interest was 1.52 million contracts.

--With assistance from Shobhana Chandra in Washington. Editors: Joe Link, Dan Stets

To contact the reporter on this story: Moming Zhou in New York at Mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.


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