Bloomberg News

Crude Oil Trades Near Eight-Month Low, Heads for Weekly Decline

June 22, 2012

Oil traded near an eight-month low below $80 a barrel in New York and headed for a second weekly decline amid signs of a global economic slowdown that may curb fuel demand.

Futures were little changed after decreasing 4 percent yesterday, the biggest drop this year. German business confidence fell to the lowest in more than two years in June as the worsening sovereign debt crisis clouded the economic outlook. The Federal Reserve Bank of Philadelphia’s economic index yesterday signaled the biggest contraction in manufacturing in almost a year.

“The euro-zone implosion brought prices down significantly,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG (RBI) in Vienna, who predicts oil will rebound. “The market is being dominated by disappointing key indicators from the U.S. and China, and a lethargic stance from Saudi Arabia at the last OPEC meeting on its readiness to cut back production.”

Oil for August delivery fell as much as 64 cents to $77.56 a barrel, the lowest since Oct. 5, in electronic trading on the New York Mercantile Exchange and was at $78.14 at 9:31 a.m. London time. Prices are down 7 percent this week and 21 percent lower this year.

Brent oil for August settlement was up 31 cents at $89.54 a barrel after sliding 74 cents, or 0.8 percent, to $88.49 on the London-based ICE Futures Europe exchange. That’s the lowest since Dec. 2, 2010. The European benchmark’s premium to West Texas Intermediate was at $11.40 after closing at $11.03 yesterday, the narrowest gap since January.

Technical Support

The Munich-based Ifo institute said today its German business climate index, based on a survey of 7,000 executives, dropped for a second straight month to 105.3 from 106.9 in May. That’s the lowest reading since March 2010. Economists predicted a decline to 105.6, according to the median of 39 estimates in a Bloomberg News survey.

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.

Worldwide Manufacturing Weakens

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.

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.

OPEC Curbs Shipments

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.

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; Grant Smith in London at gsmith52@bloomberg.net

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


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