Bloomberg News

Oil Falls First Time in Five Days as U.S. Jobless Claims Rise

December 01, 2011

Dec. 1 (Bloomberg) -- Oil declined after more Americans filed applications for unemployment benefits and as European and Chinese manufacturing weakened last month.

Futures fell for the first time in five days in New York after the Labor Department said U.S. jobless claims rose by 6,000 to 402,000 last week. Manufacturing in Europe and China shrank to the lowest levels since 2009. Prices advanced earlier on a report that showed U.S. industry grew more than expected.

“The uptick in the weekly jobless numbers is a reminder that there’s a lot to do before there’s an economic rebound of substantial strength,” said John Kilduff, a partner at Again Capital, a New York-based hedge fund focusing on energy. “The European economy is still very weak as well. The demand picture for oil remains very challenging.”

Crude oil for January delivery declined 16 cents to settle at $100.20 a barrel on the New York Mercantile Exchange. Futures rose 7.7 percent in November and are up 9.7 percent this year.

Brent oil for January settlement fell $1.53, or 1.4 percent, to $108.99 a barrel on the London-based ICE Futures Europe exchange.

The European contract’s premium to West Texas Intermediate crude traded in New York narrowed $1.37 to $8.79 a barrel today, the smallest differential since March 8. The spread surged to a record high of $27.88 on Oct. 14.

“Investors are trying to figure out what to do with the WTI-Brent spread,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.3 billion. “The most important thing we’re looking at today is the narrowing of the spread. We have to find the level justified by the fundamentals.”

Jobless Claims

U.S. jobless claims were projected to drop to 390,000 last week, according to the median forecast of 43 economists in a Bloomberg News survey.

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region fell to 46.4 from 47.1 in October, London-based Markit Economics said today. That’s the lowest level since July 2009.

China’s manufacturing contracted in November for the first time since February 2009, a purchasing managers’ index compiled by the China Federation of Logistics and Purchasing showed.

The U.S. and China were responsible for 32 percent of global oil consumption in 2010, according to BP Plc’s Statistical Review of World Energy released on June 8. The 17 countries using the euro accounted for about 12 percent of world demand last year, BP figures show.

U.S. Manufacturing

The Institute for Supply Management’s U.S. factory index increased to 52.7 last month, the fastest pace in five months, from 50.8 in October, the Tempe, Arizona-based group said today. Readings above 50 indicate expansion. Economists surveyed by Bloomberg News projected a gain to 51.8.

Oil settled above $100 for two consecutive days for the first time since June. Futures closed at a two-week high yesterday after the Federal Reserve and five other central banks agreed to boost liquidity to mitigate the impact of the European debt crisis.

“I’m flabbergasted by the recent strength of the market,” said Stephen Schork, president of the Villanova, Pennsylvania- based Schork Group Inc. “The central bank action yesterday doesn’t solve Europe’s problems. Finding a solution to the issues has been kicked down the road.”

Middle East

Turmoil in the Middle East has bolstered concern that the flow of oil may be disrupted and helped send prices above $100 a barrel. European Union governments tightened sanctions on Iran in a clampdown on the country’s nuclear program, while divisions festered over a possible halt to purchase of Iranian oil.

Following up on penalties imposed by the U.S. last month, the EU added 180 Iranian officials and companies to a blacklist and started work on sanctions on the country’s oil exports, banks, transport sector and the Revolutionary Guard Corps.

Iran is the second-largest oil producer in the Organization of Petroleum Exporting Countries, pumping 3.56 million barrels a day last month, a Bloomberg News survey showed. Saudi Arabia is the top producer.

Oil volume in electronic trading on the Nymex was 488,874 contracts as of 3:39 p.m. in New York. Volume totaled 619,621 contracts yesterday, 7.2 percent below the three-month average. Open interest was 1.3 million contracts.

--Editors: Margot Habiby, Dan Stets

To contact the reporter 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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