Bloomberg News

Oil Falls a Fifth Day on Concern U.S., China Demand Will Falter

June 04, 2012

Oil fell for a fifth day in New York to the lowest price in almost eight months on signs of an economic slowdown in the U.S. and China. London-traded Brent crude dropped from the lowest close in more than a year.

Futures tumbled as much as 2.4 percent to the lowest intraday price since Oct. 6, extending last week’s 8.4 percent decline after U.S. unemployment rose and payrolls increased less than the most-pessimistic forecasts. China’s purchasing managers’ index for non-manufacturing industries fell to the lowest level in a year, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. European leaders remain divided on solutions for the region’s debt crisis.

“We’re very, very negative on the outlook” for oil demand this year, Johannes Benigni, managing director of JBC Energy GmbH, a researcher in Vienna, said in an interview with Francine Lacqua on Bloomberg Television’s “On the Move.” Crude consumption will contract in advanced economies even as demand grows in Asia and the Middle East, he said. “Economic indicators are not looking great.”

Oil for July delivery lost as much as $2.02 to $81.21 a barrel in electronic trading on the New York Mercantile Exchange and pared some losses to trade at $82.38 at 12:58 p.m. in London. Prices slid 3.8 percent on June 1, ending the biggest weekly drop since Sept. 23. U.S. crude futures fell in 17 trading sessions in May, or the most days in a single month since January 1997. Oil is 16 percent lower this year.

Brent Premium

Brent futures for July settlement were at $96.97 a barrel, down 1.5 percent, on the ICE Futures Europe exchange in London. The European benchmark closed June 1 at the lowest level since January 2011 after falling below $100 for the first time since October. The contract’s premium to New York-traded crude was $14.61 today, compared with $15.20 on June 1.

China’s purchasing managers’ index for non-manufacturing industries decreased to 55.2 in May from 56.1 in April. That’s the lowest reading since March 2011, when the federation started seasonally adjusting the data. A Chinese manufacturing index signaled the weakest reading in five months in May, the data showed last week.

In the U.S., payrolls climbed by 69,000 last month, the Labor Department said June 1. The median projection called for a 150,000 May advance, according to a Bloomberg News survey of 87 economists. The jobless rate rose to 8.2 percent from 8.1 percent and has exceeded 8 percent since February 2009, the longest such stretch since monthly records began in 1948.

‘Weak’ Numbers

“When we see weak numbers in China and very weak job numbers in the U.S., it kicks away at the foundations,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “If the European situation is dragging both Asia and the U.S. into a contracting economic situation, then that is very bad for oil.”

The price of OPEC’s basket of crude oils dropped below $100 a barrel for the first time since Oct. 5, ending the longest run in triple digits. The basket, a weighted average price of the main crude grades produced by the Organization of Petroleum Exporting Countries, was at $97.44 a barrel on June 1, data on the group’s website showed today.

Iran will insist that OPEC keep its current production ceiling for crude when oil ministers from member nations meet this month in Vienna, Iranian state-run Press TV reported yesterday, citing Oil Minister Rostam Qasemi.

Iraq’s Position

Iraq has agreed with Iran to adopt a unified position on OPEC output and emphasized the need for the group’s members to produce in line with their collective target, Press TV said in a separate report, citing a meeting between Qasemi and Iraqi Prime Minister Nouri al-Maliki in Baghdad on June 2.

Iran is OPEC’s second-biggest producer after Saudi Arabia, which has increased supplies as U.S. and European sanctions threaten to curb the Islamic republic’s exports. OPEC produced 31.6 million barrels a day in April, 5 percent more than its 30 million barrel-a-day ceiling, according to monthly estimates from its secretariat.

Hedge funds cut bullish oil bets for a fourth week before futures plunged. Money managers reduced net-long positions, or wagers that oil prices will rise, to 136,584 in the week ended May 29, according to the Commodity Futures Trading Commission’s Commitments of Traders report on June 1. It was the lowest level since September 2010.

On Brent crude, hedge funds and other money managers cut bullish bets by 10,250 contracts in the week ended May 29, to the lowest level in more than five months, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 80,958 lots, the London-based exchange said today in its weekly Commitment of Traders report. That’s the least since Dec. 20, according to data compiled by Bloomberg.

To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net

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


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