Bloomberg News

Oil Falls to Six-Week Low as U.S. Industrial Production Drops

December 15, 2011

Dec. 15 (Bloomberg) -- Crude oil tumbled to the lowest level in six weeks as industrial production declined for the first time since April in the U.S., the world’s largest oil- consuming country.

Prices fell 1.1 percent after Federal Reserve data showed output at factories, mines and utilities slipped 0.2 percent in November. Oil also decreased as the front-month contract breached technical support at 50- and 200-day moving averages.

“The industrial demand number is weighing on the oil market,” said James Williams, an economist at WTRG Economics, an energy research firm in London, Arkansas. “People are concerned that oil demand from factories will be weaker.”

Crude for January delivery fell $1.08 to $93.87 a barrel on the New York Mercantile Exchange, the lowest settlement since Nov. 2. Prices have risen 2.7 percent this year after climbing 15 percent in 2010. Futures have tumbled 6.3 percent in the past two days.

Brent oil for January settlement increased 7 cents to expire at $105.09 a barrel on the London-based ICE Futures Europe exchange. The more-actively traded February futures fell 65 cents to settle at $103.60.

Brent oil was $11.22 higher than West Texas Intermediate oil traded on the Nymex, the biggest premium since Nov. 15.

The decline in industrial production followed a 0.7 percent gain in October, Fed data showed. Economists forecast a 0.1 percent advance, according to the median estimate in a Bloomberg News survey.

U.S. Consumption

“The U.S. is still the biggest oil consumer in the world and what happened here really matters,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

The U.S. used 19.1 million barrels a day of oil in 2010, or 21 percent of global demand, according to BP Plc’s annual Statistical Review of World Energy.

The January oil contract ended below the 50-day moving average for the first time since Oct. 13, a technical indicator that prices may continue to drop. The average was at $94.22. The contract closed below the 200-day moving average for a second day after breaching the support level for the first time in two months yesterday.

“Technically, we’re taking out a lot of support,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.

Put Options

January $94 puts, bets that futures prices will decline below the price level, were the most active options contract in electronic trading on the Nymex. January oil options expired at the close of Nymex floor trading today.

“Oil traders are very nervous about another potential selloff,” said Rich Ilczyszyn, chief market strategist and founder of IiTrader.com in Chicago. “The commodity space is still kind of shuddering here and there is no shake-off rally that one would expect after such a decline.”

Earlier, crude futures rose 1.1 after the U.S. Labor Department reported that applications for unemployment benefits slipped to 366,000 last week, the fewest since May 2008. The figure was projected to rise to 390,000 in the median forecast of 47 economists surveyed by Bloomberg News.

“The jobless claims look pretty good but the industrial production number is weak,” said Phil Flynn, an analyst with PFGBest in Chicago. “After yesterday’s big selloff, the bulls have been beaten up and they are a little nervous.”

OPEC Meeting

Futures tumbled 5.2 percent yesterday after the Organization of Petroleum Exporting Countries agreed to raise its production ceiling. OPEC decided on an output target of 30 million barrels a day at the group’s meeting in Vienna.

Saudi Arabia won’t compensate for any potential decline in Iranian oil supply if the Persian country comes under sanctions affecting its exports of crude, Iranian Oil Minister Rostam Qasemi said today.

Iran, the second-largest producer in OPEC after Saudi Arabia, may come under fresh sanctions that target its crude trade as the European Union and other importers seek to intensify pressure on the country over its nuclear program.

Oil volume in electronic trading on the Nymex was 492,687 contracts as of 3:34 p.m. in New York. Volume totaled 759,946 contracts yesterday, 16 percent above the three-month average. Open interest was 1.35 million contracts, the highest level since Nov. 16.

--With assistance from Sherry Su in London, Alexander Kowalski in New York, Sho Chandra and Timothy Homan in Washington and Barbara J Powell in Dallas. Editors: Margot Habiby, Dan Stets

To contact the reporter on this story: 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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