Bloomberg News

Oil Extends Biggest Drop in Two Weeks on Jobs, Supplies

May 03, 2012

Oil fell, extending the biggest decline in two weeks, as worse-than-forecast employment data underscored weakness in the global economy and U.S. crude stockpiles increased to the highest level in 21 years.

Futures slipped as much as 0.5 percent in New York after falling 0.9 percent yesterday, when data showed U.S. employers added fewer jobs than predicted last month while unemployment in Germany unexpectedly increased. Crude supplies in the U.S., the world’s biggest consumer of the commodity, rose to the most since September 1990, according to the Energy Information Administration. Oil pared losses after a report today showed U.S. jobless claims fell more than forecast last week.

“We are still suffering from yesterday’s data,” Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich, said in a telephone interview. “Unemployment numbers from Europe were very disappointing and the U.S. job numbers did their part in bringing oil prices down. The supply-demand situation is quite stable at the moment.”

Crude for June delivery on the New York Mercantile Exchange fell as much as 56 cents to $104.66 a barrel and was at $105.02 at 1:53 p.m. London time. The contract yesterday slid 94 cents, the most since April 18, to $105.22. Front-month oil has risen 6.3 percent this year.

Brent oil for June settlement was at $117.84 a barrel, down 36 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $12.82 a barrel. The spread ended yesterday at $12.98, the lowest closing level in more than three months.

U.S. Stockpiles

“Interesting to see that the Brent-WTI spread narrowed overnight given that Cushing stocks increased to fresh record highs,” said Richard Gorry, an analyst with JBC Energy GmbH in Singapore. “It has been our view for some time, that as we see more pipeline capacity coming online from Cushing to the U.S. Gulf Coast, the spread will come under substantial pressure.”

U.S. crude stockpiles rose 2.8 million barrels last week to 375.9 million, the EIA report showed. They were forecast to climb 2.5 million barrels, according to a Bloomberg News survey.

Inventories at Cushing, Oklahoma, the delivery point for the New York oil contract, rose 1.21 million barrels to a record 43 million, the report showed. Stockpiles at the hub have climbed 13 of the last 15 weeks.

The oil market showed “slight loosening” last quarter though it’s too early to be sure that supply conditions have improved, IEA Executive Director Maria van der Hoeven said today. The IEA, an adviser to 28 industrialized nations that has at times coordinated the release of emergency stockpiles, is ready to act again if a major disruption occurs, she said at International Oil Summit in Paris today.

One-Time ‘Bullet’

“You can only use a bullet once,” Van der Hoeven said, referring to the use of emergency stockpiles. “We are particularly concerned about the high level of supply outages.”

IEA member countries released 60 million barrels of crude and oil products last June after Libyan output was disrupted by an armed uprising against Muammar Qaddafi. Brent crude prices peaked last year at about $127 a barrel in mid-April and briefly fell below $105 in late June.

OPEC Secretary-General Abdalla el-Badri said at the same conference that there is no shortage of oil in the market, and that the Organization of Petroleum Exporting Countries is concerned that current high oil prices may lead to demand destruction.

No $100 Floor

Oil prices will have to stay above $100 a barrel to make production from shale formations and the Arctic worthwhile, said Christophe de Margerie, chairman and chief executive officer of Total SA, Europe’s third-largest oil producer.

“I don’t think this is a floor,” he told delegates at the Paris oil summit. “The costs of producing those reserves will probably be at a price higher than $100.”

Private employment in the U.S. increased by 119,000 in April, the smallest gain in seven months, after rising by 201,000 in March, ADP Employer Services said yesterday. The median forecast of economists surveyed by Bloomberg News called for an increase of 170,000.

Initial jobless claims fell by 27,000 to 365,000 in the week ended April 28, a one-month low, the Labor Department said today. The median forecast in a Bloomberg survey was for 379,000 applications.

German unemployment unexpectedly rose in April. The number of people out of work grew by a seasonally adjusted 19,000 to 2.87 million, the Nuremberg-based Federal Labor Agency said. Economists had forecast a decline of 10,000. New Zealand’s jobless rate climbed to the highest level since 2010.

‘Disappointing Data’

“Disappointing economic data from Europe and the U.S. suggested a potential slowdown in the recovery process,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. (ANZ) in Melbourne, said in a note today. “U.S. crude prices didn’t respond as bearishly as we would have expected to the additional negative data that showed yet another rise in EIA crude stocks, perhaps already having priced in a softer demand outlook a couple weeks ago.”

Technical indicators showed investors may be unsure of the direction for short-term prices. Futures yesterday traded within the previous day’s range, creating a consolidation pattern known as an “inside day,” according to data compiled by Bloomberg. Crude has technical support along the middle Bollinger Band, around $103.36 a barrel today.

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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