Bloomberg News

Oil Trades Near Five-Month Low on Europe Economy, U.S. Supplies

May 15, 2012

Oil traded near the lowest in five months in New York before reports forecast to show U.S. crude stockpiles rose to the highest level in 21 years and Europe’s economy shrank.

Futures fluctuated after sliding as much as 0.9 percent earlier today. U.S. crude stockpiles probably climbed 1.5 million barrels last week to 381 million, the most since August 1990, according to a Bloomberg News survey before government data tomorrow. Europe’s economy contracted last quarter for the first time since the final three months of 2009, a separate survey showed before a report today.

“There’s nothing in the oil market that is giving support,” said Jeremy Friesen, a commodity strategist at Societe Generale in Hong Kong. “Clearly people are going to focus on rising oil stocks in the U.S. It’s expected prices would fall as inventories build to these levels.”

Crude for June delivery was at $94.67 a barrel, down 11 cents in electronic trading on the New York Mercantile Exchange at 3:07 p.m. Singapore time. Prices dropped 1.4 percent to $94.78 yesterday, the lowest close since Dec. 19, and are down 4.1 percent this year.

Brent for June settlement slid 1 cent to $111.56 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was $16.79, unchanged from yesterday.

U.S. Crude Supplies

U.S. oil stockpiles advanced for an eighth week in the period ended May 11, according to the median of nine analyst estimates before the Energy Department report. Supplies at Cushing, Oklahoma, the delivery point for the New York oil contract, are projected to climb to the highest level since the department began tracking inventories at the hub in 2004.

Cushing stockpiles probably increased before Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD:US) reverse shipments on their 150,000-barrel-a-day Seaway pipeline this week. The line may ease a glut of crude in the Midwest by carrying it to refineries on the U.S. Gulf Coast.

U.S. gasoline at the pump fell below year-earlier levels for the fourth straight week. The national average price for regular gasoline dropped 0.9 percent, or 3.6 cents, to $3.754 a gallon from a week earlier, the U.S. Energy Information Administration said in its weekly retail report yesterday. The price was down 5.2 percent from a year earlier and the lowest since Feb. 27, the agency said.

European Outlook

Gasoline for June delivery was at $2.9676, up 0.86 cents, on the New York Mercantile Exchange today. Prices settled yesterday at the lowest level since Feb. 7.

Oil also slid on concern Europe’s recovery has stalled amid a debt crisis. The region’s economy shrank 0.2 percent in the three months to the end of March, according to the median estimate of 25 economists surveyed by Bloomberg before today’s report. Moody’s Investors Service downgraded 26 Italian banks yesterday, citing weakened earnings and the country’s economic outlook.

Greece, without a government for more than a week and with 10-year debt yields of more than 25 percent, decides today whether to pay 436 million euros ($559 million) to bondholders who shunned a debt swap last month. Talks between the nation’s main parties following May 6 elections have failed to reach agreement on forming a coalition.

‘Crisis of Confidence’

Oil investors are “pricing in the risk of a reduction in demand, and doing that against a backdrop now when supply and inventory are fairly comfortable,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “In Greece, it’s a very uncertain outcome. We certainly have to count as a possibility that we could see another crisis of confidence for consumers and investors.”

The European Union accounted for about 16 percent of the world’s oil consumption in 2010, according to BP Plc (BP/)’s Statistical Review of World Energy. The U.S. accounted for 21 percent.

Rising temperatures may increase Saudi Arabia’s consumption of its own oil for power generation to a record, hindering attempts by the world’s biggest exporter of crude to ease prices with higher output. Peak power consumption may climb 5 percent from last summer amid increased use of air conditioners, Abdullah al-Shehri, the governor of the Electricity and Co- Generation Regulatory Authority, said in a speech in Riyadh on May 8.

Saudi Arabia Oil Minister Ali al-Naimi said May 13 that Brent, the benchmark for more than half the world’s oil, should drop to $100 a barrel because global crude supplies exceed demand. The country pumped 10.1 million barrels a day in April, the highest level in more than three decades, a report by the Organization of Petroleum Exporting Countries showed May 10.

To contact the reporter on this story: Ramsey Al-Rikabi in Singapore at ralrikabi@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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