Bloomberg News

Oil Falls on Concern Fuel Demand May Slow as Banks Raise Rates

June 10, 2011

June 10 (Bloomberg) -- Crude oil declined in New York, trimming a weekly gain, amid speculation demand will falter as Asia’s central banks raises interest rates to curb inflation and the U.S. job market weakens.

Futures slipped for the first time in four days, losing as much as 1.1 percent. South Korea’s central bank raised rates for a third time this year, and U.S. jobless claims unexpectedly increased. The Organization of Petroleum Exporting Countries forecast a “tightening” oil market as demand for its crude rises, two days after members of the producer group failed to agree on output increases.

“Prices are coming back to reality as the post-OPEC gains aren’t sustainable,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “Demand will feel the high of high prices. We have supplies rising, and inventories are high.”

Crude for July delivery slid as much as $1.12 to $100.81 a barrel in electronic trading on the New York Mercantile Exchange and was at $100.92 at 1:06 p.m. London time. Prices are up 0.7 percent this week.

Brent crude for July delivery was at $119.40 a barrel, down 17 cents, on the London-based ICE Futures Europe exchange. The contract yesterday increased $1.72, or 1.5 percent, to $119.57. It was the highest settlement since May 4.

The European benchmark contract traded at a premium of $18.49 a barrel to U.S. futures today. The difference between front-month contracts in London and New York reached a record $18.62 on June 8. It averaged 84 cents last year.

No Consensus

OPEC, which concluded its June 8 meeting in Vienna without reaching consensus on production targets, will release a monthly report on supply and demand levels later today.

Crude in New York gained about 11 percent this year, partly as the conflict in Libya halted exports of crude. Prospects for Libya returning to production are “rather limited,” Bank of America Merrill Lynch said in a report today. The bank may increase its second-half forecast for Brent crude of $102 a barrel, analysts led by New York-based Francisco Blanch said.

“Barrels will have to make it into the market fast in order to avoid large inventory draws in the third quarter of 2011,” Blanch said.

The Bank of Korea raised its benchmark seven-day repurchase rate to 3.25 percent from 3 percent to rein in inflation that has exceeded its target range. The Philippine central bank boosted the rate it pays lenders for overnight deposits to 4.5 percent in May.

U.S. jobless claims climbed by 1,000 to 427,000 last week, Labor Department figures showed yesterday. That was more than forecast in a Bloomberg News survey.

--With assistance from Ben Sharples in Melbourne. Editors: Raj Rajendran, Rob Verdonck.

To contact the reporter on this story: Rachel Graham in London

To contact the editor responsible for this story: Stephen Voss at

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