Bloomberg News

Crude Falls on Factory Orders Below Expectations, Fed Minutes

April 03, 2012

Oil declined for the first time in three days as U.S. factory orders climbed less than expected in February and the Federal Reserve said it’s holding off on increasing monetary accommodation.

Prices dropped 1.2 percent after the Commerce Department reported factory bookings rose 1.3 percent. The median of 60 economists’ projections in a Bloomberg News survey called for a 1.5 percent advance. Oil extended losses after the release of minutes of a March 13 Fed meeting showed reduced urgency to add monetary stimulus.

“The factory orders are negative and there is nothing to get very excited about,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “The market is reacting to the Fed statement.”

Oil for May delivery slipped $1.22 to settle at $104.01 a barrel on the New York Mercantile Exchange. Futures have risen 5.2 percent this year.

Prices were little changed after the American Petroleum Institute said oil supplies rose 7.85 million barrels to 359.3 million last week. Futures dropped $1.12, or 1.1 percent, to $104.11 at 4:36 p.m. in electronic trading.

Brent crude for May settlement slid 57 cents, or 0.5 percent, to $124.86 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $20.85, the biggest spread since October.

The gain in February orders followed a revised 1.1 percent decline in January, figures from the Commerce Department showed. Slower growth in Europe and China indicate that sales overseas remain a risk.

Added Stimulus

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to the Fed minutes.

The central bank last month affirmed its plan, first announced in January, to hold interest rates near zero through late 2014 as the economy may fail to grow fast enough to continue bringing down the unemployment rate.

“The market didn’t get the insurance it was looking for, in the form of further quantitative easing,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Futures also dropped after a Bloomberg News survey showed stockpiles probably gained 0.7 percent last week to 355.9 million barrels. That would be the highest level since August.

“An increase in inventories would be bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “After the big run-up yesterday, people are selling off a little bit.”

Oil Supplies

The Energy Department will release its inventory report at 10:30 a.m. tomorrow in Washington. Crude inventories grew by 7.1 million barrels to 353.4 million in the week ended March 23, the largest increase since July 2010, the Energy Department said March 28. Supplies have gained in five of the past six reports.

“There’s no immediate shortage of supplies,” said Andrey Kryuchenkov, an analyst at VTB Capital in London, who predicts U.S. oil will struggle to rally beyond $107 a barrel. “Today there’s small-scale profit-taking after last night’s rally. The upside is also limited on demand concerns.”

U.S. fuel demand dropped 0.1 percent to 18.2 million barrels a day in the four weeks ended March 23, according to the Energy Department. It was down 5.3 percent from the same period a year earlier.

Oil pared losses earlier as gasoline futures rallied as much as 1.4 percent and stocks climbed.

Equity Markets

“The market is very responsive to the equity market,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “With higher prices of gasoline, oil is going to be a follower.”

The Standard & Poor’s 500 Index fell 0.7 percent after climbing earlier to little changed. Gasoline rose as prices in Europe increased to a record, weakening the incentive to export cargoes of the motor fuel to the U.S.

The Eurobob grade of gasoline traded at $1,202 to $1,210 a metric ton for immediate loading in Amsterdam-Rotterdam-Antwerp, according to a survey of brokers and traders monitoring the Argus Bulletin Board. It’s the highest price for Eurobob, which was introduced in 2010, according to data compiled by Bloomberg.

Oil may fall to the lowest level since December if prices drop below a “psych barrier” at $100 a barrel, according to technical analysis from the Schork Group Inc.

After $100, prices may test support at the 200-day moving average of $95.40 a barrel, according to a report yesterday by Stephen Schork, president of the Schork Group in Villanova, Pennsylvania.

Electronic trading volume on the Nymex was 471,791 contracts as of 4:37 p.m. in New York. Volume totaled 526,360 contracts yesterday, 19 percent below the three-month average. Open interest was 1.56 million.

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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