Bloomberg News

Oil Falls From Three-Day High on Rising Stockpiles, Europe Debt

July 13, 2011

July 13 (Bloomberg) -- Oil declined from a three-day high in New York as investors bet that increasing U.S. crude supplies and Europe’s spreading debt crisis signaled demand for raw materials may falter.

Futures fell as much as 0.9 percent after the American Petroleum Institute said crude inventories rose for the first time in six weeks. An Energy Department report today may show supplies shrank. Prices also dropped after Ireland joined Portugal and Greece as the third euro-area nation to have its credit rating reduced to below investment grade.

“There’s still concern around the euro-zone,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicts oil in New York will average $113 a barrel in the third quarter. “The crude market hasn’t improved much in terms of those supply dynamics. Demand is still pretty sluggish.”

Crude for August delivery slipped as much as 90 cents to $96.53 in electronic trading on the New York Mercantile Exchange, and was at $97.16 at 11:35 a.m. Singapore time. The contract yesterday climbed $2.28, or 2.4 percent, to $97.43, the highest since July 7. Prices have gained 26 percent in the past year.

Brent oil for August settlement fell 45 cents, or 0.4 percent, to $117.30 a barrel on the ICE Futures Europe exchange in London. That took the European benchmark contract to a premium of $20.14 a barrel above U.S. futures, compared with $20.32 yesterday and the record close of $22.29 on June 15.

Chinese Refining

Crude also slid after the China Federation of Logistics and Purchasing said oil-processing volumes shrank 0.7 percent from a year earlier to 35.5 million metric tons in June. That’s down from May’s 38.47 million tons, the third-highest on record.

The nation’s gross domestic product for the second quarter climbed 9.5 percent, the country’s statistics bureau said. That was down from 9.7 percent in the first quarter.

“The weaker data on GDP and oil processing are not very promising,” said Victor Shum, a senior principal at consultants Purvin & Gertz in Singapore. “If we continue to see lackluster growth, that limits gains in oil. We have to wait for the DOE numbers but the API’s showed sort of a large gain so it’s unexpected.”

U.S. crude inventories climbed 2.3 million barrels last week to 359.4 million, the industry-funded American Petroleum Institute report showed yesterday. The Energy Department today may say supplies dropped 1.5 million barrels, according to the median of 15 analyst estimates in a Bloomberg News survey.

Oil-supply totals from the American Petroleum Institute and the Energy Department have moved in the same direction 71 percent of the time over the past year. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines.

Ireland Cut

Moody’s Investors Service cut Ireland to Ba1 from Baa3, citing the probability that the country will need additional official financing and for investors to share in losses before it can return to the private market to borrow.

The euro fell to a four-month low yesterday against the dollar as European finance ministers failed to present a solution to the financial contagion that’s threatening to spread to Italy from Greece, Ireland and Portugal.

The Organization of Petroleum Exporting Countries projected that world oil demand will average about 88.1 million barrels a day this year, up 1.4 million from last year. It also said consumption would grow at a slower pace for a second year in 2012 as usage falls in Europe and other industrialized nations.

Global oil consumption will average 89.5 million barrels a day in 2012, OPEC’s Vienna-based secretariat said yesterday in its monthly report, giving its first forecast for next year. That’s up 1.5 percent from the 2011 estimate.

New York crude futures have averaged $98.34 a barrel this year, according to data compiled by Bloomberg. That’s up from $79.61 in 2010. The Energy Department reduced its forecast for prices this year to an average $98.43 a barrel from $101.91 in its monthly Short-Term Energy Outlook, released yesterday. The department also cut its forecast for global consumption for this year to 88.16 million barrels a day from 88.43 million estimated last month.

--With assistance from Christian Schmollinger in Singapore. Editors: Jane, Ching Shen Lee, John Chacko

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

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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