Bloomberg News

Crude Declines for Second Day After Employment Report

July 06, 2012

Oil fell for a second day after a report showed U.S. employers hired fewer workers than forecast in June, increasing concern that slower economic growth will reduce demand for oil.

Oil slipped after the Labor Department said payrolls rose 80,000, less than the 100,000 increase forecast by economists surveyed by Bloomberg. The International Monetary Fund will reduce its estimate for global growth this year, Managing Director Christine Lagarde said.

“Coming in at 80,000, that’s very disappointing and you are seeing oil prices decline on it,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “The U.S. economy is really stagnant right now and there will be no new increase in oil demand whatsoever.”

Oil for August delivery fell $2.77, or 3.2 percent, to settle at $84.45 a barrel on the New York Mercantile Exchange. Crude, which fell 0.6 percent this week, is down 15 percent this year. The weekly decline was the eighth in 10 weeks.

Brent oil for August declined $2.51, or 2.5 percent, to settle at $98.19 a barrel on the London-based ICE Futures Europe exchange.

Private employment, which excludes government agencies, increased 84,000, the weakest performance in 10 months.

“The market is taking the jobs number negatively,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The numbers were below the consensus but probably not bad enough to trigger a third round of quantitative easing.”

The unemployment rate held at 8.2 percent in June, matching the median estimate of analysts surveyed by Bloomberg.

Slower Growth

“The global growth outlook will be somewhat less than we anticipated just three months ago,” Lagarde said in a speech in Tokyo. “And even that lower projection will depend on the right policy actions being taken.”

The new outlook will be announced in 10 days, after an April estimate of 3.5 percent, she said. The IMF has lowered its U.S. growth estimate to 2 percent from April’s 2.1 percent.

The “key emerging markets” of Brazil, China and India are showing signs of slowdown, Lagarde said. Those three countries along with Russia will comprise more than 20 percent of the world economy this year, according to IMF data.

Oil consumption in the U.S., the world’s largest user, will drop for a second year in 2012, the Energy Department said last month in its Short-Term Energy Outlook. Demand in Europe will also decline both this year and next, the department said.

‘Weaker Demand’

‘The market is just reacting to the bad jobs numbers,’’ said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Weaker demand goes with slower economic growth.”

Prices also followed declines in equities and the euro. The Standard & Poor’s 500 Index fell as much as 1.4 percent and the euro weakened to a two-year low against the dollar. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.

“The dollar has been strengthening in the last couple days on the actions of central banks overseas, which is also weakening oil,” Schenker said.

Oil also fell on speculation that Norway’s government will stop a strike by energy workers after Labor Minister Hanne Bjurstrom told striking oil workers to resume talks with employers to resolve a strike that has helped push Brent oil above $100 this week for the first time since June 11.

Oil Loss

The action has led to the loss of 2.58 million barrels of crude, Jan Hodneland, chief negotiator of the industry association, said by phone yesterday from Stavanger.

“Production will come back to normal if they stop the strike,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “The jobs report is very bearish.”

Oil may rise next week as U.S. inventories fell the most in six months, a Bloomberg survey showed. Crude stockpiles decreased 4.27 million barrels last week, the biggest decline since Dec. 16, the Energy Department reported yesterday.

Thirteen of 27 analysts, or 48 percent, forecast crude prices will increase through July 13. Eleven respondents, or 41 percent, predicted that futures will drop and three said there will be little change in prices.

Electronic trading volume on the Nymex was 456,570 contracts as of 3:10 p.m. in New York. Volume totaled 675,430 contracts yesterday, 19 percent above the three-month average. Open interest was 1.42 million.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net 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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