Bloomberg News

Oil Drops After Biggest Gain in 5 Weeks as Storm Slows

August 06, 2012

Oil slid from the highest close in two weeks in New York amid speculation that its biggest gain in more than a month was excessive. Tropical Storm Ernesto slowed as it headed westward in the Caribbean.

Futures slipped as much as 0.8 percent after closing 4.9 percent higher on Aug. 3, the most since June 29. Prices finished last week with a gain of 1.4 percent after U.S. payrolls rose more than estimated and service industries expanded at a faster pace. Ernesto, located about 180 miles east of the Nicaragua and Honduras border, had winds of about 50 miles per hour, down from 60 mph on Aug. 4, according to the U.S. National Hurricane Center.

“This is a small correction after the massive move last Friday,” said Eugen Weinberg, head of commodity market research at Commerzbank AG in Frankfurt. “Brent near $110 is a bit excessive.”

Oil for September delivery slid as much as 77 cents to $90.63 a barrel in electronic trading on the New York Mercantile Exchange and was at $91.14 at 12:58 p.m. London time. It surged $4.27 to $91.40 on Aug. 3, the highest settlement since July 20. Prices are 7.8 percent lower this year.

Brent crude for September settlement fell 50 cents, or 0.5 percent, to $108.44 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate was at $17.30, compared with $17.54 on Aug. 3.

Technical Resistance

WTI is retreating after reaching technical resistance around $91.85 a barrel, data compiled by Bloomberg show. That’s the higher of two so-called leading span lines that define an “ichimoku cloud,” an area where buy orders tend to be clustered. Futures halted their gain near this line on Aug. 3.

Oil futures rose on Aug. 3 after Labor Department data showed payrolls gained 163,000 in July compared with a forecast for a 100,000 increase by economists surveyed by Bloomberg News. The Institute for Supply Management’s non-manufacturing index unexpectedly climbed.

Ernesto was moving west at 12 mph, the Miami-based center said in a web advisory at 5 a.m. local time today, down from 15 mph earlier.

A hurricane watch is in place for the Yucatan Peninsula on the east coast of Mexico. The Gulf of Mexico to the north is home to 29 percent of U.S. oil production, 6.5 percent of the country’s natural-gas output and 40 percent of its refining capacity, according to the U.S. Energy Department.

“The previous peak of around $93 for West Texas looms as a bit of a psychological resistance level for the market,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. The weakening of tropical storm Ernesto “takes away a potential supply disruption,” he said.

Bullish Bets

Hedge funds and other money managers raised bullish bets on Brent crude to the highest level in more than two months, according to ICE data.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 86,065 contracts in the week ended July 31, the London-based exchange said today in its weekly Commitment of Traders report. That’s an increase of 8,555 lots. Net longs were at 91,208 on May 22, the data show.

South Sudanese officials will meet their Sudanese counterparts “soon” to conclude an oil deal and continue talks on security issues, said Pagan Amum, the south’s chief negotiator. South Sudan, which halted oil production in January amid a dispute with Sudan over transit fees, is able to resume production by September, he said in a statement published on the government’s website.

At independence, South Sudan assumed 75 percent of the previous country’s 490,000 barrels a day in oil production.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ayesha Daya in Dubai at adaya1@bloomberg.net

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


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