Bloomberg News

Oil Falls as Norway Ends Strike, U.S. Equities Decline

July 10, 2012

Oil fell after Norway ended a strike that threatened to halt output by western Europe’s largest crude exporter and as U.S. equities decreased for a fourth day.

Futures dropped 2.4 percent in New York after Norway’s government ordered compulsory arbitration in the dispute, preventing a platform workers’ lockout scheduled to start at midnight yesterday. The drop in crude prices accelerated as the Standard & Poor’s 500 Index (SPX) slipped on pessimism about earnings season and the euro fell to a two-year low against the dollar.

“The end of the Norwegian oil worker strike was the biggest factor behind today’s drop,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The S&P moved lower this afternoon, which added strength to the downward move. It adds to concern about the economy slowing.”

Crude oil for August delivery declined $2.08 to settle at $83.91 a barrel on the New York Mercantile Exchange. Prices have decreased 15 percent this year.

Declines eased after the American Petroleum Institute reported oil inventories fell 695,000 barrels to 381.9 million in the week ended July 6. The August contract was down $1.92, or 2.2 percent, at $84.07 a barrel at 4:34 p.m.

Brent oil for August settlement fell $2.35, or 2.3 percent, to end the session at $97.97 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to West Texas Intermediate crude, the grade traded in New York, dropped to $14.06 a barrel from $14.33 yesterday.

Norwegian Arbitration

Norway announced the arbitration in a statement on the Oslo-based Labor Ministry’s website. The strike, which started June 24, disrupted about 15 percent of the nation’s oil output, the Oil Industry Association said June 27. The nation pumps about 1.8 percent of global consumption, data from the Norwegian Petroleum Directorate show.

Statoil ASA (STL), Norway’s largest energy company, said it will resume full production within a week.

“We rose yesterday on the strike and are coming off today on its resolution,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Now attention will shift to the demand outlook.”

The S&P 500 decreased 0.8 percent, and the Dow Jones Industrial Average dropped 0.7 percent.

The euro weakened 0.5 percent to $1.2252 at 4:34 p.m. in New York. It touched $1.2235, the lowest level since July 2010. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.

The common currency reached its lows after Italian Prime Minister Mario Monti said he won’t serve in another government when his term ends next year.

Debt Crisis

“The Monti announcement is having an impact on most markets,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The Italian political system is dysfunctional and this makes him a lame duck. This increases the odds that the euro-zone debt crisis will worsen.”

Oil prices have moved for more than two years on developments in the euro region’s debt crisis and their projected impact on energy demand. The crisis that began in Greece has spread to Ireland, Portugal, Italy and Spain.

The U.S. Energy Department reduced its New York crude-oil price and demand projections for 2012 and 2013. Global oil demand next year will average 89.37 million barrels a day next year, down 500,000 barrels from June’s projection.

“The DOE cut its demand forecast for 2013 by more than I would have expected,” Evans said. “They are now projecting a low-growth scenario for both years.”

Chinese Imports

China’s net crude arrivals fell to the lowest level this year. The General Administration of Customs said net imports fell to 5.28 million barrels a day in June. That’s the least since December and compares with a record high 5.98 million in May, according to data compiled by Bloomberg. China is the world’s second-biggest oil-consuming country after the U.S.

The customs bureau also reported that China’s total imports of goods increased 6.3 percent in June from a year earlier, below the 11 percent median estimate in a Bloomberg News survey. Export growth was 11 percent, down from 15 percent in May.

“The news from China is both good and bad,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The weak import data may increase the likelihood of increased stimulus, which would boost demand.”

Oil in New York has technical support along the middle Bollinger band on the daily chart, around $83.66 a barrel today, according to data compiled by Bloomberg. Futures yesterday rebounded after trading near that indicator. Buy orders tend to be clustered close to chart-support levels.

Inventory Projection

U.S. oil supplies probably declined for a third week as refineries processed more crude to meet peak summer demand and as imports declined, a Bloomberg survey shows. Stockpiles fell 1.38 million barrels, according to the median of 10 analyst estimates before an Energy Department report tomorrow.

Electronic trading volume on the Nymex was 439,111 contracts as of 4:32 p.m. in New York. Volume totaled 474,076 contracts yesterday, 16 percent below the three-month average. Open interest was 1.42 million.

To contact the reporters on this story: 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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