Bloomberg News

Crude Falls on Slowing-Demand Outlook; IEA May Release More Oil

June 26, 2011

June 27 (Bloomberg) -- Oil fell in New York on concern the economic expansion in the U.S. is slowing and as the International Energy Agency said it’s prepared to release more stockpiles to stabilize prices.

Futures dropped as much as 0.8 percent before reports this week that may show U.S. consumer spending climbed at the slowest pace in almost a year and manufacturing cooled. Greek lawmakers will vote on a five-year austerity plan that must pass for the cash-strapped nation to secure more international aid. The IEA, adviser to 28 nations, will act again if needed, Executive Director Nobuo Tanaka said in Beijing on June 25.

“Leading into the IEA’s decision to release stockpiles, we had a global economy that was slowing and we already had concerns over Greece,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. The IEA’s move suggests “there is more urgency for lower oil prices than the market thought,” he said.

Crude oil for August delivery declined as much as 76 cents to $90.40 a barrel on the New York Mercantile Exchange, and was at $90.61 at 10:43 a.m. Singapore time. Prices rose 14 cents, or 0.2 percent, to $91.16 on June 24, and are up 16 percent the past year.

Brent oil for August delivery fell as much as 87 cents, or 0.8 percent, to $105.25 a barrel on the London-based ICE Futures Europe exchange. The contract dropped $2.14, or 2 percent, to $105.12 a barrel on June 24, the lowest close since Feb. 18.

Brent, the European benchmark contract, traded at a premium of $13.87 a barrel to U.S. West Texas Intermediate futures.

IEA Stockpiles

The Federal Reserve is unlikely to start a third round of quantitative easing, known as QE3, when a $600 billion purchase program ends this week, Jan Loeys, chief market strategist at JPMorgan Chase & Co., told Susan Li on Bloomberg Television’s “First Up.” The world’s biggest crude user may release oil stockpiles to drive prices lower and stimulate consumption instead, he said.

“Instead of QE3, we have IEA1, which is the release of strategic oil reserves,” Loeys said. The IEA’s decision “is really pushing oil prices down and will provide a good boost to consumption in the second half of this year,” he said.

Consuming nations will release emergency oil stockpiles through the IEA for the third time in more than three decades as the war in Libya chokes global supplies, the Paris-based agency said on June 23.

The U.S. Strategic Petroleum Reserve will provide 30 million barrels of the IEA release, European members will supply about 20 million and Asian nations about 10 million barrels.

Greek Rescue

“It’s helping Greece, it’s helping Europe, it’s helping everyone by lowering the cost of oil imports,” said Commodity Broking Services’ Barratt. “They’re helping the U.S. It seems like there’s a policy shift by the U.S. to try and get external markets to help.”

Greek Prime Minister George Papandreou faces his second survival test in a week as lawmakers vote on a 78 billion-euro ($110 billion) austerity package. Failure to pass Papandreou’s plan may lead to the euro area’s first sovereign default as Greece needs to cover 6.6 billion euros of maturing bonds in August.

Hedge funds cut bullish bets on oil to the lowest level in more than six months. The funds and other large speculators reduced wagers on rising prices by 14 percent in the week ended June 21, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. Bullish bets have dropped 46 percent from a March 8 record amid disappointing U.S. economic reports on employment and housing.

U.S. consumer purchases rose 0.1 percent in May, the smallest gain since June 2010, according to the median estimate of 63 economists in a Bloomberg News survey before a Commerce Department report today.

Economic growth in the U.S. slowed to a 1.9 percent annual rate in the first quarter from 3.1 percent in the previous three months as surging energy costs strained consumer finances.

--Editors: Jane, Ching Shen Lee, Baldave Singh

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editor responsible for this story: Jane, Ching Shen Lee at jalee@bloomberg.net


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