Bloomberg News

Oil Drops a Second Day on Signs of Slowing Economy; OPEC Meets

June 06, 2011

June 6 (Bloomberg) -- Oil dropped for a second day in New York, extending last week’s 0.4 percent decline, on signs of a slowdown in demand as OPEC ministers arrived in Vienna to discuss production quotas.

Futures fell as much as 1.4 percent as the highest U.S. jobless rate this year fueled concern that the recovery in the world’s largest economy is faltering. The Organization of Petroleum Exporting Countries is unlikely to change targets when it meets June 8, according to a Bloomberg News survey of 30 analysts conducted in the week to May 31.

“We have been stuck in a range for a long time now with Libyan pressures seemingly passing away,” said Alexander Ridgers, London-based head of commodities at CMC Markets. “Around $99 seems like the right price. The current data coming out suggests a falloff in economic activity and a decrease in demand, but if this happens OPEC will tighten their supply.”

Crude for July delivery dropped as much as $1.42 to $98.80 a barrel in electronic trading on the New York Mercantile Exchange and was at $99.26 at 1:48 p.m. London time. Prices are 39 percent higher the past year.

Brent crude for July delivery lost as much as $1.62, or 1.4 percent, to $114.22 a barrel on the London-based ICE Futures Europe exchange, and traded at $114.83 after climbing 30 cents, or 0.3 percent, on June 3. Prices are 59 percent higher in the past year.

U.S. Economy

The unemployment rate in the U.S. unexpectedly climbed to 9.1 percent in May and payrolls grew at the slowest pace in eight months, showing employers are losing confidence as the economy slows. Employers added a less-than-projected 54,000 jobs last month, after a revised 232,000 gain in April that was smaller than initially estimated. The median forecast in a Bloomberg News survey called for payrolls to rise 165,000.

The U.S. trade deficit probably widened in April to a 10- month high, reflecting higher crude oil costs that have since retreated, economists said before a report this week.

OPEC will probably maintain production levels when it meets, 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 won’t announce any supply increase and will keep its formal quota unchanged for an eighth consecutive meeting at the June 8 gathering, 27 of 30 analysts said. Brent crude rallied 22 percent this year as conflict halted Libyan exports. The International Energy Agency, an adviser to importing nations, said on May 19 that there is “an urgent need” for more oil.

Supply Concern

“We don’t expect any changes, but who knows. The market is still concerned about the supply side,” said Andrey Kryuchenkov, London-based vice president of commodities research at VTB Capital.

Crude at $75 to $80 a barrel is a reasonable price, Shamsul Azhar Abbas, chief executive officer of Malaysia’s state oil company, Petroliam Nasional Bhd., said at the Asia Oil and Gas Conference in Kuala Lumpur today.

Hedge-fund managers and other large speculators decreased their net-long position in crude futures in the week ended May 31, according to Commodity Futures Trading Commission data.

Managed money bets that prices will rise, in futures and options combined, outnumbered short positions by 224,441 futures, the Washington-based regulator said in its weekly Commitments of Traders report. Net long positions fell by 1,236 contracts, or 0.55 percent, from a week earlier.

Keystone Pipeline

TransCanada Corp. started transporting crude through its 591,000 barrel-a-day Keystone pipeline after it was shut because of a leak, the second unplanned closure in a month. The shutdown of the pipeline on May 29 helped push the front-month crude contract in New York to a 20-day high of $103.39 on May 31.

The system resumed oil flows June 5 after the U.S. Pipelines and Hazardous Materials Safety Administration approved the company’s restart plan, Calgary-based TransCanada said in a statement dated yesterday.

The company shut the pipeline on May 29 after a fitting started leaking at a pump station in Doniphan County, Kansas, about 60 miles (97 kilometers) northwest of Kansas City, Missouri. The incident spilled less than 10 barrels of oil, TransCanada said.

Brent traded at a premium of $15.55 a barrel to U.S. futures, from $15.62 on June 3. 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.

--With assistance from Christian Schmollinger in Singapore. Editors: Raj Rajendran, Randall Hackley

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Sherry Su in London at lsu23@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net


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