Bloomberg News

Oil Falls, Heading for Quarterly Decline on Europe Debt Crisis

September 28, 2011

Sept. 28 (Bloomberg) -- Oil fell in New York, heading for the biggest quarterly decline since 2008, on speculation that fuel demand will drop as the U.S. economy slows and Europe’s debt crisis batters consumer sentiment.

Futures slipped as much as 2.1 percent after posting the biggest gain in four months yesterday. U.S. inventories of gasoline and crude oil increased last week, according to a Bloomberg News survey before today’s Energy Department report. Commerce Department data today showed U.S. durable goods orders fell and a report tomorrow may confirm European consumer confidence slid to a two-year low in September.

“We’re likely to see more of a correction in oil prices as the slowdown in economic growth and demand does not bode well,” said Eliane Tanner, an analyst at Bank Sarasin & Cie AG in Zurich, who last month correctly predicted oil would drop. “Brent prices could go below $95, but as we approach $90 it becomes a buying opportunity.”

Crude for November delivery slid as much as $1.79 to $82.66 a barrel in electronic trading on the New York Mercantile Exchange and was at $83.40 at 1:40 p.m. London time. The contract yesterday climbed $4.21, or 5.3 percent, to $84.45. It was the biggest gain since May 9.

Oil is down 6.1 percent this month and 8.7 percent this year. Prices have dropped 13 percent since the end of June, the biggest quarterly loss since the last three months of 2008.

Fuel Supplies

Brent crude for November settlement was at $106.37 a barrel, down 77 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $22.97 to U.S. futures, compared with a record $26.87 on Sept. 6, based on front-month settlement prices.

An Energy Department report today was forecast to show a gain of 1 million barrels, according to the median estimate of 15 analysts surveyed by Bloomberg. Stockpiles of crude oil rose 2.05 million barrels, or 0.6 percent, to 341.1 million barrels last week, according to the median of responses.

The American Petroleum Institute said yesterday gasoline supplies increased 4.6 million barrels last week, while crude stockpiles rose 568,000 barrels. The industry-funded API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Demand Slump

Most advanced economies are lapsing back into recession while the U.S. is already in the throes of an economic contraction, Nouriel Roubini, co-founder and chairman of Roubini Global Economics LLC, said yesterday in a panel discussion at the Bloomberg Dealmakers Summit in New York.

Orders for U.S. durable goods fell 0.1 percent in August, the Commerce Department reported in Washington today. That compares with a median forecast of a 0.2 percent decline in a Bloomberg survey of economists.

The U.S. is the world’s biggest crude consumer, accounting for 21 percent of global demand last year, according to BP Plc’s annual Statistical Review of World Energy. The European Union accounted for about 16 percent.

Front-month Brent futures are poised to drop relative to longer-dated contracts, Citigroup Inc. said in a note. A return of Libyan crude production and weakening refinery margins may lead to a narrowing in the premium of prompt Brent oil, Citigroup. said in a note e-mailed today, dated Sept. 26.

Libya Output

The Seamagic, an oil tanker managed by Greek shipping company Thenamaris Ships Management Inc., started loading a cargo of crude oil from two Libyan ports on Sept. 26, according to two people with direct knowledge of the transaction.

Fighting in the African nation since February has reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day last month, according to Bloomberg estimates, compared with the 1.6 million barrels a day the nation pumped in January.

Oil in New York has technical support along its lower Bollinger Band on the daily chart at around $80.35 a barrel today, according to data compiled by Bloomberg. Bollinger Bands, which plot support and resistance levels based on volatility, are used by investors to determine entry points for buying or selling contracts.

--With assistance from Yee Kai Pin in Singapore and Ben Sharples in Melbourne. Editors: John Buckley, Raj Rajendran

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Sherry Su in London at lsu23@bloomberg.net

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


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