Bloomberg News

Oil Falls to Six-Week Low on Larger-Than-Forecast Supply Gain

February 02, 2012

Feb. 1 (Bloomberg) -- Oil declined to a six-week low after the Energy Department reported U.S. inventories climbed more than expected and gasoline demand tumbled to a 10-year low.

Futures dropped 0.9 percent after supplies rose 4.18 million barrels to 338.9 million last week. A 2.6 million-barrel gain was forecast in a Bloomberg News survey. Gasoline consumption slipped to 7.97 million barrels a day.

“The tone is turning bearish,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “We continue to get bearish reports week after week and the market has been able to hold on. It looks like that is about to end.”

Crude oil for March delivery fell 87 cents to $97.61 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 20. The price has increased 7.5 percent in the past year.

Brent crude oil for March settlement climbed 58 cents, or 0.5 percent, to end the session at $111.56 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate futures widened to $13.95, the most since Nov. 11. Brent traded at a record $27.88 more than WTI on Oct. 14.

“If we can move below the $97.50 area there’s nothing stopping us until $92.50,” Mesh said. The intraday low of $92.52 on Dec. 16 is the lowest price since Nov. 3.

Gasoline demand declined 1.6 percent to the lowest level since the week ended Sept. 21, 2001, the report showed. Total fuel consumption dropped 8.3 percent to 17.7 million barrels a day, the least since 1999.

Gasoline Inventories

Stockpiles of the motor fuel rose 3.02 million barrels to 230.1 million in the week ended Jan. 27, the highest level since February, the report showed. A 500,000-barrel gain was projected, according to the median of 12 analyst estimates in the Bloomberg News survey.

“We’ve been drifting lower on the negative gasoline numbers,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “There was an early rally on economic data, but we were unable to sustain it.”

Refineries operated at 81.8 percent of capacity, down 0.4 percentage point from the week before. It was the lowest operating rate since May.

Oil advanced earlier after manufacturing indexes from China to the U.S. to Germany increased. Manufacturing in the U.S. grew in January at the fastest pace in seven months, according to the Institute for Supply Management. The Tempe, Arizona-based group’s manufacturing index rose to 54.1 from 53.1 in December. The median forecast of economists surveyed by Bloomberg News was 54.5.

Chinese Industry

China’s official purchasing managers’ index increased to 50.5 from 50.3 in December, exceeding the median estimate in a Bloomberg News survey. A separate gauge from HSBC Holdings Plc and Markit Economics rose to 48.8. India’s manufacturing grew at the fastest pace in eight months. Germany’s manufacturing index rose to 51, according to Markit Economics.

“The PMI numbers are casting a positive light on the commodity space,” said David McAlvany, chief executive officer of McAlvany Financial Group in Durango, Colorado. “The data points to strong growth in both China and India during the first half of the year. The U.S. economy is also doing better, which is good for demand.”

Companies in the U.S. added 170,000 workers in January, according to a private report based on payrolls. The increase followed a revised 292,000 rise the prior month that was smaller than previously reported, the report from the Roseland, New Jersey-based ADP Employer Services showed today. The median estimate in a Bloomberg News survey of 40 economists called for an advance of 182,000.

Strike Averted

Oil also climbed earlier after the United Steelworkers union and Royal Dutch Shell Plc yesterday averted a potential strike that would have idled as many as 69 refineries. Other companies involved include Valero Energy Corp., Exxon Mobil Corp., BP Plc, ConocoPhillips, Chevron Corp., Marathon Oil Corp., Sunoco Inc., Tesoro Corp. and PBF Energy Inc.

Futures touched $103.74 a barrel on Jan. 4, the highest level since May 11, on concern that rising tension between Iran and the West would lead to a disruption of shipments from the Persian Gulf.

Nuclear talks between senior United Nations officials and members of Iran’s government progressed enough for both sides to commit to more negotiations, International Atomic Energy Agency Chief Inspector Herman Nackaerts told reporters today at Vienna International Airport after returning from a trip to the nation.

Oil volume in electronic trading on the Nymex was 543,137 contracts as of 3:25 p.m. in New York. Volume totaled 739,294 on yesterday, 27 percent above the three-month average. Open interest was 1.4 million contracts, the most since Nov. 11.

--With assistance from Jonathan Tirone in Vienna. Editors: Richard Stubbe, 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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