Bloomberg News

Oil Declines on German Bond Sale, U.S. Durable-Goods Orders

November 23, 2011

Nov. 23 (Bloomberg) -- Oil declined as demand for German bonds missed expectations and U.S. durable-goods orders fell, reducing optimism that economic growth will improve.

Futures fell 1.9 percent after Germany failed to find buyers for 35 percent of bonds at an auction. Orders for goods meant to last at least three years fell in October, the second straight decline. Oil pared losses after the Energy Department reported inventories fell to a 21-month low.

“The German bond issue was a disaster and concern about the European bond markets seems to be the dominant play today,” said David McAlvany, chief executive officer of McAlvany Financial Group in Durango, Colorado. “The oil inventory numbers are less important than the larger economic picture.”

Crude oil for January delivery dropped $1.84 to settle at $96.17 a barrel on the New York Mercantile Exchange. The price, which ranged from $95.35 to $97.87, was $95.60 before the Energy Department report was released.

Brent oil for January settlement decreased $2.01, or 1.8 percent, to $107.02 a barrel on the London-based ICE Futures Europe exchange.

“Crude is trading with the stock market and the dollar, not with the inventory numbers,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “I would expect that the $95 level will hold.”

Equities Decline

The Standard & Poor’s 500 Index fell 1.4 percent at 3:10 a.m., declining for a sixth day. The Dow Jones Industrial Average slid 1.3 percent.

The Dollar Index, which tracks the U.S. currency against six major peers including the euro and the yen, rose 0.9 percent. A stronger dollar reduces crude’s appeal as an investment alternative.

Germany’s 10-year bond yield rose after the government didn’t get enough bids for benchmark 10-year bunds to reach its maximum sales target of 6 billion euros ($8.1 billion), extending Europe’s two-year-old debt crisis to the world’s fourth-biggest economy.

“Europe’s core is under attack,” said Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, who correctly predicted this month that crude prices would fall. “It’s getting harder and harder for Europe to escape austerity and a possible credit crunch in the same fashion as 2008.”

Durable Goods

Oil also slipped after the Commerce Department said U.S. bookings for equipment meant to last at least three years declined 0.7 percent, less than forecast. It revised September’s decline to 1.5 percent.

The department reported that consumer purchases, which account for 70 percent of the economy, increased 0.1 percent last month, slower than a 0.7 percent gain in September,

Also weighing on oil prices, a Chinese preliminary purchasing managers’ index conducted by HSBC Holdings Plc and Markit Economics showed a reading of 48, compared with a final number of 51 last month. A number below 50 indicates a contraction.

The U.S. and China are the world’s two biggest oil consumers, accounting for 32 percent of total consumption, according to the BP Statistics Review.

“I’m surprised how well the market has held up given all of the negative news,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Nobody seems to want to finance debt anymore, we got a negative Chinese PMI number and the U.S. economic data today were bad.”

Stockpiles Decline

U.S. oil supplies dropped 6.22 million barrels to 330.8 million in the week ended Nov. 18, the lowest level since January 2010, the Energy Department said today. Inventories were forecast to rise 500,000 barrels, according to the median of 13 analyst estimates in a Bloomberg News survey.

Stockpiles at Cushing, Oklahoma, the delivery point for Nymex futures, fell 13,000 barrels to 32 million.

Gasoline inventories gained 4.48 million barrels to 209.6 million, and distillate fuels, which include heating oil and diesel, fell 770,000 barrels to 133 million.

Gasoline was forecast to grow 1 million barrels and distillate was projected to decline 1.25 million, according to the Bloomberg survey.

Total petroleum consumption fell 3.8 percent to 18.6 million barrels a day, department data showed.

Oil volume in electronic trading on the Nymex was 468,026 contracts as of 3:10 p.m. in New York. Volume totaled 589,348 contracts yesterday, 12 percent below the three-month average. Open interest was 1.3 million contracts.

--With assistance from Grant Smith in London. Editors: Richard Stubbe, Dan Stets

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net Moming Zhou in New York at Mzhou29@bloomberg.net;

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


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