Bloomberg News

Oil Tumbles, Trimming Weekly Gain, as U.S. Jobless Rate Climbs

July 08, 2011

July 8 (Bloomberg) -- Crude oil dropped, paring a second weekly gain, after the U.S. added fewer jobs than forecast in June and the unemployment rate climbed, damping optimism for an economic rebound and growth in fuel demand.

Futures fell 2.5 percent after the Labor Department said U.S. employers added the fewest workers in nine months and the unemployment rate rose to 9.2 percent, the highest level this year. The premium of London’s Brent oil over New York crude briefly breached the record set June 15.

“The employment data clearly represents a real setback for the economy,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “These numbers go right to the heart of the demand picture for gasoline and other fuels.”

Crude oil for August delivery declined $2.47 to settle at $96.20 a barrel on the New York Mercantile Exchange. It was the biggest drop since June 23. The contract yesterday climbed to $98.67, the highest close since June 14. Prices rose 1.3 percent this week and have increased 28 percent in the past year.

Brent crude oil for August settlement fell 26 cents to end the session at $118.33 a barrel on the London-based ICE Futures Europe exchange. The contract increased 5.9 percent this week.

Brent’s premium to West Texas Intermediate, the grade traded in New York, widened to $22.13 a barrel, earlier reaching $22.43. Libyan output cuts and North Sea maintenance underpin the European benchmark grade as economic concern and ample stockpiles send U.S. oil lower.

Brent Premium

The gap between front-month futures of both grades surged to a record $22.29 on a settlement basis on June 15. The spread narrowed when the International Energy Agency said June 23 it would release 60 million barrels to the market.

U.S. payrolls increased by 18,000 in June, Labor Department data showed in Washington. The median estimate in a Bloomberg News survey called for a gain of 105,000. Hiring by companies was the weakest since May 2010. Average hourly earnings fell 1 cent to $22.99, today’s report showed. The average work week for all workers dropped to 34.3 hours from 34.4 the prior month.

“The U.S. data surprised to the downside massively,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “Lower payrolls, higher unemployment rate and no wage growth do not bode well for commodities, so we expect a further slide ahead.”

The Standard & Poor’s 500 Index declined 1 percent to 1,339.92, and the Dow Jones Industrial Average slipped 0.8 percent to 12,621.90. The S&P GSCI Index of 24 raw materials dropped 0.8 percent to 685.68.

Yesterday’s Gain

Oil surged 2.1 percent yesterday after data from ADP Employer Services showed a 157,000 gain in the number employed by businesses last month. U.S. initial jobless claims fell by 14,000 to 418,000 in the week ended July 2, according to Labor Department figures released yesterday.

“We had a run-up on enthusiasm about the economy and this jobs number has knocked the props out from under the market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Demand is very weak, down almost 2 percent from a year ago over the last four weeks, which is a lot of oil.”

U.S. fuel demand was little changed at 19 million barrels a day over the past four weeks, 1.8 percent lower than a year earlier, an Energy Department report showed yesterday.

Crude-oil supplies fell 889,000 barrels to 358.6 million last week, the department said. A 2.5 million-barrel drop was projected, according to the median on 15 analyst forecast in a Bloomberg News survey.

NATO Attack

Brent gained relative to other grades after warplanes from the North Atlantic Treaty Organization carried out strikes July 6 on positions held by forces loyal to Libya’s Muammar Qaddafi in the town of Brega, including refueling equipment. The strike on infrastructure related to Libya’s oil assets was the first of its kind, an alliance official who declined to be identified according to NATO policy said today from Naples, Italy.

The Libyan revolt, which began in February, has reduced the availability of light, sweet crude, or oil with low density and sulfur content. The African country’s output fell 50,000 barrels, or 25 percent, to 150,000 barrels a day last month, a Bloomberg News survey showed, the lowest amount in yearly data since 1962.

Daily exports of the four North Sea crude grades that determine Dated Brent, the benchmark for more than half of the world’s oil, will drop to the lowest level in more than four years, loading programs obtained by Bloomberg showed.

Shipments of Brent, Forties, Oseberg and Ekofisk grades will total 27.85 million barrels, or 898,387 barrels a day, in August, the plans showed. That is 16 percent less than in July.

Oil volume in electronic trading on the Nymex was 615,128 contracts as of 3:20 p.m. in New York. Volume totaled 726,406 contracts yesterday, 5.7 percent above the average of the past three months. Open interest was 1.54 million contracts.

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

To contact the reporter on this story: 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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