Bloomberg News

Crude Oil Falls to One-Year Low on Lack of Confidence in Economy

October 04, 2011

Oct. 4 (Bloomberg) -- Oil fell to a one-year low for a third day in New York amid concern that fuel demand will drop as investors lose confidence in the U.S. and European economies. Brent settled below $100 for the first time since February.

U.S. futures declined 2.5 percent after European policy makers indicated they may renegotiate terms of Greece’s bailout. Prices pared an intraday loss after Federal Reserve Chairman Ben S. Bernanke signaled he may not be finished with attempts to stimulate the economy and as Saudi Arabian security forces were wounded during unrest in the kingdom.

“Fears of recession are driving us lower,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Until we see some positive signals of the economic front, the market should move lower. We now have to find the next support level, which should be near $70.”

Crude for November delivery decreased $1.94 to $75.67 a barrel on the New York Mercantile Exchange, the lowest settlement since Sept. 23, 2010. Futures have fallen 7.9 percent in the past three sessions.

Prices increased from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles decreased 3.07 million barrels to 344.2 million. November futures rose 57 cents, or 0.7 percent, to $78.18 a barrel in electronic trading at 4:32 p.m. Futures also advanced after the settlement as U.S. equities reversed an earlier loss.

Brent oil for November settlement declined $1.92, or 1.9 percent, to $99.79 a barrel on the London-based ICE Futures Europe exchange, the lowest close since Feb. 7.

Falling Shares

The Standard & Poor’s 500 slid 1.4 percent to 1,083.82 at 3:20 p.m. in New York. It ended the day up 2.3 percent at 1,123.95 following a report that European Union officials were examining ways to coordinate the recapitalizations of banks. The Dow Jones Industrial Average increased 153.41 points, or 1.4 percent, to 10,808.71, reversing an intraday loss of 250.81 points.

“Bernanke seems to be giving a little vote of confidence that Europe will take care of the situation there and stocks aren’t falling out of bed anymore,” said Phil Flynn, vice president of research at PFGBest in Chicago.

The chairman said the central bank “will continue to closely monitor economic developments” in testimony to Congress’s Joint Economic Committee today in Washington.

Capital Equipment

The Commerce Department also reported orders for U.S. capital equipment increased in August by the most in three months, a sign business investment and exports held up in the face of mounting concern over the European debt crisis.

“As the economy goes, as the equity markets go, so goes the market,” said Carl Larry, director of energy derivatives and research with Blue Ocean LLC in New York. “The issues in Greece and the continued erosion of the U.S. stock market are our clear-cut correlation.”

Eleven members of the security forces in Saudi Arabia, the world’s largest oil exporter, were wounded by attackers armed with machine guns and Molotov cocktails during unrest in a Shiite Muslim town in the east, the official Saudi Press Agency said.

European finance ministers in Luxembourg considered recrafting a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion-euro rescue package for Greece.

Libyan Output

Crude also decreased on signs of rising production from Libya. The North African country aims to raise output to more than 500,000 barrels a day by the end of this month, according to Nuri Berruien, the chairman of the state-run National Oil Corp. Its target of restoring crude production to 1.7 million barrels a day within 15 months is a “conservative figure,” he said yesterday in Tripoli.

Fighting in Libya 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 in August, according to Bloomberg estimates. The North African nation pumped 100,000 barrels a day last month.

“Libyan production coming back at higher quantities than originally thought is a bit bearish,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna, who predicts Brent will average $107 a barrel this quarter. “The most important thing, of course, is the economy and fears of slower growth in the emerging markets are a big driver. Risk is clearly on the downside.”

Goldman Cut

Goldman Sachs Group Inc. cut its 2012 forecast for Brent crude. Goldman Sachs said Brent will average $120 a barrel next year, down from $130.

Jeffrey Currie, an oil analyst at Goldman Sachs, cited a “flatter upward trajectory” as he cut his Brent crude prediction. In a separate report, Goldman Sachs cut its global economic growth forecast for this year and next, predicting recessions in Germany and France as Europe stalls and the risk of a contraction in the U.S. grows.

Oil volume in electronic trading on the Nymex was 745,741 contracts as of 3:44 p.m. in New York. Volume totaled 705,614 contracts yesterday, 6.9 percent above the average of the past three months. Open interest was 1.42 million contracts.

--With assistance from Mark Shenk in New York and Grant Smith in London. Editors: Dan Stets, Charlotte Porter

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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