Bloomberg News

Oil Falls on Unexpected U.S. Supply Gain, Durable Goods Orders

July 27, 2011

July 27 (Bloomberg) -- Crude oil fell as an unexpected inventory increase and a decline in durable goods orders bolstered concern that economic growth is slowing.

Futures dropped 2.2 percent after Energy Department said supplies gained 2.3 million barrels to 354 million last week. A 2 million-barrel decline was forecast in a Bloomberg News survey. Gasoline, diesel and heating oil stockpiles also rose. Bookings for goods meant to last three years or more fell 2.1 percent, the Commerce Department said.

“There were builds across the board in the DOE report, which sent oil lower,” said Peter Beutel, president of Cameron Hanover Inc., a trading advisory company in New Canaan, Connecticut. “There are a number of reasons to be bearish right now. Inventories, durable goods, the debt talks and the dollar are all putting downward pressure on the market.”

Crude oil for September delivery fell $2.19 to $97.40 a barrel on the New York Mercantile Exchange, the lowest settlement since July 18. Prices have climbed 26 percent in the past year.

Brent crude oil for September settlement slipped 85 cents, or 0.7 percent, to end the session at $117.43 a barrel on the London-based ICE Futures Europe exchange. The European benchmark was at a $20.03 premium to oil traded in New York, down from a record $22.63 on July 14.

Supplies of crude oil at Cushing, Oklahoma, the delivery point for the New York-traded West Texas Intermediate grade, increased 430,000 barrels to 37.1 million in the week ended July 22, the department said.

Stockpile Release

The Energy Department will deliver 30.64 million barrels of crude oil from the U.S. Strategic Petroleum Reserve in July and August, according to its website. The department will deliver about 8.7 million barrels this month.

The International Energy Agency announced June 23 its members were offering 60 million barrels of oil from emergency stockpiles to damp prices, in the first deployment of the reserves in almost six years. The U.S. accounted for about half the release.

“Today’s number was a surprise, but shouldn’t have been,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “We’re starting to see the delivery of over 30 million barrels from the SPR. Commercial inventories are going to rise now after falling so much in recent weeks.”

U.S. crude oil supplies fell 22.1 million barrels, or 5.9 percent, in the seven weeks ended July 22, the report showed.

Fuel Supplies

Gasoline inventories rose 1.02 million barrels to 213.5 million. Stockpiles of distillate fuel, a category that includes heating oil and diesel, surged 3.39 million barrels to 151.8 million, the highest level since April 1.

Refineries operated at 88.3 percent of capacity, down 2 percentage points from the prior week and the biggest decline since the week ended April 8.

“We had a surprise build and the market dropped,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “The economic news is horrible.”

Orders for durable goods rose 1.9 percent in May, which was smaller than reported last month, the Commerce Department report showed. The median forecast of 76 economists surveyed by Bloomberg News projected a 0.3 percent increase in June. Orders excluding transportation equipment rose less than forecast and demand for business equipment dropped.

“The durable goods number today was lower than expected and they also cut the previous month’s figure,” said Carl Larry, director of energy derivatives and research with Blue Ocean LLC in New York. ‘This is a bad sign for the economy.’’

Slower Economic Growth

The economy grew at a slower pace in more parts of the U.S. since the beginning of June as shoppers restrained spending and factory production eased, the Federal Reserve said in its Beige Book survey released today in Washington.

Oil also declined as a stalemate over the U.S. debt ceiling pushed the government closer to default. BlackRock Inc., Loomis Sayles & Co. and Franklin Templeton Investments said the country faces losing its top-level debt rating as officials struggle to raise the $14.3 trillion borrowing limit.

House Speaker John Boehner, battling resistance from within his own Republican Party as he intensifies a debt-ceiling standoff with President Barack Obama, worked to salvage his plan to tie the nation’s borrowing power to spending cuts and budget controls.

“The debt talks are dragging on and that has got just about all of markets lower,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The dollar is up on the day, which is probably weighing on oil.”

Equities Drop

The S&P 500 Index declined 1.9 percent to 1,307.12, and the Dow Jones Industrial Average dropped 1.4 percent to 12,321.89. The dollar rose advanced 1 percent to $1.4363 against the euro, from $1.4511 yesterday, after dropping as low as $1.4536, the weakest level since July 5. A stronger U.S. currency reduces the appeal of dollar-denominated raw materials as an investment.

Oil volume in electronic trading on the Nymex was 468,508 contracts as of 3:13 p.m. in New York. Volume totaled 575,757 contracts yesterday, 14 percent below the average of the past three months. Open interest was 1.51 million contracts.

--Editors: Richard Stubbe, Dan Stets

To contact the reporters 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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