Bloomberg News

Crude Oil Futures Drop From One-Week High

July 16, 2012

Oil fell from the highest close in more than a week after Premier Wen Jiabao said China’s economic recovery hasn’t gained momentum, stoking speculation that demand may ease in the world’s second-biggest crude consumer.

Futures slid as much as 0.8 percent in New York, their first decline in four days. Wen said “difficulties” may persist, according to the official Xinhua News Agency. Abu Dhabi started exporting crude through a pipeline to the Indian Ocean port of Fujairah, bypassing the Strait of Hormuz, the oil- transit corridor that Iran threatened to shut earlier this year in response to sanctions on its nuclear program.

“It’s true that the Chinese economy is expanding more slowly than in the past, though their growth rate is still pretty good,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark. “Any shutdown of Hormuz, the world’s No. 1 oil chokepoint, would have a major impact on prices, but now at least there are alternatives.”

Oil for August delivery dropped as much as 69 cents to $86.46 a barrel in electronic trading on the New York Mercantile Exchange and was at $86.71 at 1:38 p.m. London time. The contract gained 1.2 percent to $87.10 on July 13, the highest close since July 5. Prices are 12 percent lower this year.

Brent crude for August settlement was 15 cents higher at $102.55 a barrel on the London-based ICE Futures Europe exchange. The contract expires today. The more-active September contract was at $101.50, up 8 cents. The European benchmark’s premium to West Texas Intermediate was at $15.95, compared with $15.30 on July 13.

Bullish Bets

Oil in New York is declining as futures approach a so- called “death cross” technical formation, according to data compiled by Bloomberg. The 100-day moving average, at $96.16 a barrel today, has almost erased a premium to the 200-day mean at $96.07. Investors typically sell contracts when a shorter moving average falls below a longer one. Crude has resistance along the 50-day average at $87.18.

Hedge funds cut bullish oil wagers for the first time in three weeks, according to the Commodity Futures Trading Commission’s Commitments of Traders report on July 13. Money managers reduced net-long positions by 5.1 percent in the seven days ended July 10, the report showed.

In London, money managers reduced bullish bets on Brent crude from their highest in a month by 5,431 contracts in the week ended July 10, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 60,004 lots, the London-based exchange said today in its weekly Commitment of Traders report. That compares with net-longs of 65,435 contracts a week earlier.

China Slows

Chinese Premier Wen’s comments followed data that showed Asia’s largest economy had the weakest expansion in three years. Even so, the pace of economic expansion is within the targeted range and government measures to stabilize growth are “bearing fruit,” he said yesterday, according to the report from Xinhua.

The country processed crude at the slowest rate in eight months in June. Refining slid to 8.79 million barrels a day last month, the least since October and down 3.4 percent from May, according to July 13 data from the National Bureau of Statistics.

“News of China’s slowing growth is affecting markets,” Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said in a telephone interview yesterday. “The opening of the Fujairah pipeline that bypasses the Strait of Hormuz also means improved security.”

The crude line built by Abu Dhabi, the capital of the United Arab Emirates and holder of more than 90 percent of its oil, will work as an export route that avoids Hormuz at the mouth of the Persian Gulf. The system stretches from Abu Dhabi to the neighboring sheikhdom of Fujairah on the Gulf of Oman. The link was loading its first shipment of 500,000 barrels to Pakistan’s Pak Arab Refinery Ltd., Mohamed Bin Dhaen Al-Hamli, oil minister for the U.A.E, said yesterday at a ceremony to inaugurate the network.

The U.A.E is “happy with current prices given the state of the world economy,” al-Hamli told reporters at the event.

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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