Bloomberg News

Oil Drops to 2012 Low on Chinese Output, Europe Debt

May 11, 2012

Oil dropped to a 2012 low after China’s industrial growth unexpectedly slowed in April and concern grew that Europe’s debt crisis will worsen, reducing fuel consumption.

Futures fell 1 percent after industrial output increased in China by the least since 2009. Prices also slumped as Spain said it will force lenders to raise provisions against real estate holdings and JPMorgan Chase & Co. (JPM:US) reported a $2 billion trading loss. Crude declined a second week after U.S. supplies rose to a 21-year high.

“There are a combination of factors pushing oil lower,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “There’s a heck of a lot of oil out there, so supply isn’t a problem, and recent economic data along with the problems in Europe point to lower demand.”

Crude for June delivery fell 95 cents to $96.13 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 19. Prices slipped 2.4 percent this week and are down 2.7 percent this year.

Oil in New York may extend losses after settling below the 200-day moving average for the first time since Dec. 19. The technical indicator stood at $96.27. Buy and sell orders tend to be clustered near chart-support levels.

Brent oil for June settlement slipped 47 cents, or 0.4 percent, to end the session at $112.26 a barrel on the London- based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate widened to $16.13 from $15.65.

Industrial Production

Chinese factory output rose 9.3 percent in April from a year earlier, the country’s National Bureau of Statistics reported. Indian industrial production declined 3.5 percent from a year earlier, the Central Statistical Office said in a statement today. A 1.7 percent gain was forecast, according to the median of 32 economist responses in Bloomberg survey.

“The Chinese industrial numbers were worse than expected and Indian industrial data were really disappointing,” Schork said. “There’s not a lot of good news out there.”

Greece has been unable to form a government since the May 6 elections, raising the possibility that another vote will take place as early as next month. Spain’s government took control of the nation’s fourth-biggest lender this week as it starts its fourth bank cleanup in three years.

JPMorgan Chase Chief Executive Officer Jamie Dimon said yesterday that the firm suffered the trading loss after an “egregious” failure in a unit managing risks. The shares fell 9.3 percent today.

‘Weighed Down’

“I see no reason to be long anything today,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The Chinese headlines got us moving lower today. The market was already weighed down by concerns about Europe and by the loss at JPMorgan Chase.”

Prices also fell as supply exceeded expected demand. U.S. crude stockpiles rose 3.65 million barrels last week to 379.5 million, the highest level since 1990, according to Energy Department data. The gain was the seventh in a row.

“The recent correction is to do with the broader risk-off mode,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London. “We had been building up to a correction as a result of higher OPEC supply and a whole string of crude inventory gains in the U.S.”

The International Energy Agency made a “modest” 80,000- barrel-a-day increase to its estimate for oil consumption to 88.7 million in 2012 in its monthly oil-market report today. The Paris-based agency said global markets are “marginally tighter” and predicted that geopolitical risks to crude supply will keep prices high.

‘Upside Risk’

“The IEA report highlighted upside risk,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “The tensions with Iran aren’t resolved and the global economy is still chugging along.”

Last month, representatives from the U.S., Russia, China, the U.K., France and Germany held their first international meeting with Iran on its nuclear program in 15 months. They agreed to resume the negotiations in Baghdad on May 23. The U.S. and its allies are concerned that Iran’s nuclear program is a cover for developing weapons, which the Islamic republic denies.

Crude may decline next week, according to Bloomberg survey. Eleven of 23 analysts, or 48 percent, forecast oil will drop through May 18. Nine respondents, or 39 percent, predicted prices will be steady and three said there will be a gain.

Electronic trading volume of crude oil on the Nymex was 448,421 contracts as of 3:27 p.m. in New York. Volume totaled 568,617 contracts yesterday, 6.3 percent below the three-month average. Open interest was 1.56 million.

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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