Bloomberg News

Oil Near Nine-Month Low on Economy; Heads for Weekly Drop

June 22, 2012

Oil fell for a third day to the lowest level in almost nine months and headed for a second weekly decline amid signs of a global economic slowdown that may curb fuel demand.

Futures slid as much as 0.8 percent after decreasing 4 percent yesterday, the biggest drop this year. The Federal Reserve Bank of Philadelphia’s economic index signaled the biggest contraction in manufacturing in almost a year, adding to data that showed factory output shrinking in Europe and China. Prices rebounded as much as 1 percent earlier after a storm started to form in the Gulf of Mexico and prices approached a technical support level.

“I expected the oil market to be supported at $80, but it easily broke down,” said Ken Hasegawa, a commodity derivative sales manager at Newedge Group in Tokyo who forecasts New York crude will trade between $75 and $82 a barrel through the end of this month. “The rebound is just because of buying on dips after the sharp decline in yesterday’s session.”

Oil for August delivery fell as much as 64 cents to $77.56 a barrel in electronic trading on the New York Mercantile Exchange and was at $77.88 at 3:25 p.m. Singapore time. The contract yesterday tumbled $3.25 to $78.20, the lowest close since Oct. 4. Prices are down 7.3 percent this week and 21 percent lower this year.

Brent oil for August settlement slid 59 cents, or 0.7 percent, to $88.64 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate was at $10.76 after closing at $11.03 yesterday, the narrowest gap since January.

Technical Support

Oil in New York has technical support along its lower Bollinger Band on the 30-day chart, data compiled by Bloomberg show. Futures yesterday halted their decline near the indicator, which is at about $77.37 a barrel today. Buy orders tend to be clustered near chart-support levels.

Prices may fall next week on signals that global economic growth is slowing, a Bloomberg survey showed. Fourteen of 27 analysts, or 52 percent, forecast crude will decline through June 29. Nine respondents, or 33 percent, predicted that futures will be little changed and four said there will be an increase.

The Federal Reserve Bank of Philadelphia’s factory index dropped to minus 16.6 in June, the lowest reading since August. A gauge of euro-region manufacturing fell to 44.8, the weakest in three years, London-based Markit Economics said yesterday in an initial estimate. The preliminary reading for a Chinese purchasing managers’ index from HSBC Holdings Plc and Markit was 48.1, signaling an eighth month of contraction.

OPEC Shipments

Brent settled below $90 a barrel yesterday for the first time since December 2010 and has dropped 30 percent since its high for the year on March 1. The Organization of Petroleum Exporting Countries agreed June 14 to keep its output quota unchanged at 30 million barrels a day amid calls from some members including Iran to cut supply to avoid further price declines.

The group will trim exports in the four weeks to July 7 as Gulf producers led by Saudi Arabia pare a surge in output, according to Oil Movements, a tanker tracker. OPEC, responsible for about 40 percent of global supplies, will reduce shipments by 20,000 barrels a day to 23.92 million a day, the researcher said yesterday in a report. The data exclude Angola and Ecuador.

“If Brent is below $90 a barrel, some action from OPEC might be expected,” said Hasegawa, who forecasts the European marker grade will trade between $86 a barrel and $93 in the short term. “We have to keep an eye out for comments from OPEC. The economy will not be happy if suddenly there is some supply cut” that boosts prices, he said.

Storm Building

A swath of rain and thunderstorms across the Caribbean from Mexico to southern Florida has a 70 percent chance of becoming a tropical storm in 48 hours, according to the National Hurricane Center in Miami.

The weather system may move into the Gulf, threatening disruptions to oil and gas operations in the region. Rain and flooding is possible from southern Florida to Mexico’s Yucatan Peninsula for the next two days, the hurricane center said in an advisory at 2 a.m. New York time. The Gulf is home to 6.5 percent of U.S. natural-gas output, 29 percent of oil production and 40 percent of refining capacity.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

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


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