Bloomberg News

Oil Falls on Bets Rising U.S. Stockpiles Show Demand Is Slowing

July 27, 2011

July 27 (Bloomberg) -- Oil fell in New York on speculation rising U.S. crude stockpiles indicate fuel demand is faltering in the world’s biggest consumer of the commodity.

Futures dropped as much as 1 percent after the industry- funded American Petroleum Institute said inventories climbed 3.96 million barrels to 358.2 million last week, the biggest increase in three months. An Energy Department report today may show supplies decreased 2 million barrels, according to a Bloomberg News survey. Prices failed to settle above $100 a barrel yesterday on concern the U.S. may default amid a standoff over the country’s $14.3 trillion debt limit.

“If the U.S. doesn’t increase the debt ceiling then the outlook for the economy becomes more subdued and that would weigh on oil,” said Eliane Tanner, an analyst at Bank Sarasin & Cie AG in Zurich. “But market fundamentals are quite tight. We still don’t have the supply problems in the Middle East resolved yet and demand is to remain pretty robust. We expect sideways trading in a $110 to $120 range for the next few months.”

Crude for September delivery dropped as much as 97 cents to $98.62 a barrel in electronic trading on the New York Mercantile Exchange. It was at $98.68 at 12:52 p.m. London time. Futures have gained 27 percent in the past year.

Brent-WTI

Brent for September settlement on the London-based ICE Futures Europe exchange fell as much as 74 cents, or 0.6 percent, to $117.54 a barrel. The European benchmark contract was at an $18.91 premium to New York futures, down from a record $22.63 on July 14.

“Prices may be range-bound until the American debt issue is resolved,” said Ken Hasegawa, a commodity-derivatives sales manager at broker Newedge Group in Tokyo, who predicts oil will trade between $97.50 and $101.50 a barrel this week.

U.S. gasoline stockpiles probably increased for a second week, gaining 400,000 barrels in the seven days to July 22, according to the median estimate of 14 analysts surveyed before the Energy Department report today.

Oil rose yesterday after an index of U.S. consumer confidence rebounded from an eight-month low and the dollar fell on concern the country may default. A weaker greenback bolsters the investment appeal of commodities as a hedge against inflation.

Crude in New York is declining as it may have advanced too quickly, technical charts suggest. The 14-day stochastic oscillator is above 80, indicating futures are at so-called overbought levels, according to data compiled by Bloomberg.

An area of showers and thunderstorms associated with a tropical wave over the northwestern Caribbean Sea has a 40 percent chance of becoming a tropical cyclone in the next 48 hours, the U.S. National Hurricane Center said in an advisory. The Atlantic hurricane season is monitored by the oil and gas industry because of the potential impact on production areas including the Gulf of Mexico.

--With assistance from Ben Sharples in Melbourne. Editors: Raj Rajendran, Rachel Graham.

To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net


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