Bloomberg News

Oil Falls to Two-Week Low on Signs Economy Slowing as OPEC Meets

June 06, 2011

June 6 (Bloomberg) -- Crude oil fell to the lowest level in two weeks in New York on speculation that fuel demand is faltering along with economic growth and as OPEC ministers arrive in Vienna to discuss production targets.

Futures dropped as the U.S. jobless rate climbed to the highest level this year, adding to concern that the recovery is slowing in the largest oil-consuming country. 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 ended May 31.

“The direct oil-demand data that we’re seeing already confirms that demand in the U.S. in particular is significantly weaker than it was at this time last year,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The big question facing the market this week is what exactly OPEC is going to do.”

Crude for July delivery tumbled $1.21, or 1.2 percent, to $99.01 a barrel on the New York Mercantile Exchange, the lowest settlement since May 23. Prices are 38 percent higher than a year ago. It was the first time since May 17 that futures declined for two consecutive trading days.

Brent crude oil for July delivery fell $1.36, or 1.2 percent, to $114.48 a barrel on the London-based ICE Futures Europe exchange.

The U.S. unemployment rate unexpectedly climbed to 9.1 percent in May and payrolls grew at the slowest pace in eight months, the Labor Department reported June 3. Employers added 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.

$100 Pivot

“The market is reacting to consistently discouraging economic news,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We’re still pivoting around $100 a barrel and have yet to get news that will justify a move below $95 or above $105.”

Total products supplied in the U.S., a measure of fuel consumption, was 5 percent below the year-earlier level for the four weeks ended May 27, the Energy Department reported last week. Demand rose 1.1 percent to 18.7 million barrels a day in the period, the first gain since April 22.

Last month the U.S. cut its forecast for global oil consumption for this year to 88.08 million barrels a day from 88.2 million estimated in April, according to the Short-Term Energy Outlook published by the Energy Department. The next report is scheduled for release tomorrow.

“If you’ve been hanging your hat on global consumption expanding, you’ve got to take another look,” said Rich Ilczyszyn, a market strategist at Lind-Waldock, a broker in Chicago.

OPEC Production

OPEC won’t announce a supply increase and will keep its formal production quota unchanged for an eighth consecutive meeting, according to the Bloomberg survey of analysts. Venezuelan Oil Minister Rafael Ramirez also said the group is unlikely to raise production.

“We have to wait to discuss the situation in the market,” Ramirez said as he arrived today in Vienna for the meeting. “We believe at the moment we’re in balance.”

The International Energy Agency, an adviser to importing nations, said on May 19 that there is “an urgent need” for more oil supply.

Barclays Plc forecast that the group may increase production limits at the upcoming meeting, according to a report today by analysts led by London-based Paul Horsnell.

“A recalibration of the overall output target closer to the actual output level is long overdue and is expected,” the analysts said in the report. “Ministers should also give a clear signal about increases in actual output.”

Pipeline Restart

TransCanada Corp. started transporting crude through its 591,000-barrel-a-day Keystone pipeline yesterday 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 intraday high of $103.39 on May 31.

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 contracts, the Washington-based regulator said in its weekly Commitments of Traders report. Net long positions fell by 1,236 contracts, or 0.6 percent, from a week earlier.

Oil volume in electronic trading on the Nymex was 456,796 contracts as of 3:21 p.m. in New York. Volume totaled 695,622 contracts June 3, 4.3 percent above the average of the past three months. Open interest was 1.51 million contracts.

--With assistance from Sherry Su in London and Grant Smith and Fred Pals in Vienna. Editors: Richard Stubbe, Dan Stets

To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net.

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


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