Bloomberg News

Oil Declines for Second Day as Storm Approaches Gulf

August 24, 2012

Oil fell for a second day amid concern of slowing economic growth in the U.S. and speculation that European leaders aren’t making progress on resolving the region’s debt crisis.

Futures slid as much as 0.9 percent earlier today. German Chancellor Angela Merkel said she and French President Francois Hollande will maintain the pressure on Greece to overhaul its economy at meetings with Prime Minister Antonis Samaras in Berlin today and tomorrow. Demand for U.S. capital goods such as machinery and communications gear dropped in July by the most in eight months, indicating companies are pulling back on investment.

“Oil is down today on economic concerns,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “QE3 hopes, geopolitical tensions and supply-side risks should limit the downside,” he said, referring to a possible third phase of asset purchases by the Federal Reserve.

Crude for October delivery dropped as much as 86 cents to $95.41 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.12 at 2:35 p.m. London time. The contract yesterday fell 1 percent to $96.27, the lowest close since Aug. 20. Prices are up 0.1 percent this week and 2.7 percent this year.

Brent oil for October settlement slid 9 cents, or 0.1 percent, to $114.92 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate was at $18.8, from $18.74 yesterday.

Oil is declining in New York after futures reached technical resistance yesterday along a downward-sloping trend line going back to March 1, according to data compiled by Bloomberg. This line, starting at the 2012 intraday high of $110.55 a barrel, is at $98.48 today. Sell orders tend to be clustered near chart-resistance levels.

Bailout Program

Samaras has used interviews this week with German and French newspapers to call for more time to meet targets under its bailout program as European officials look for ways to tame the debt crisis. Greece is dependent upon receiving outside funds to remain in the 17-nation euro area.

There won’t be anything tangible from the meetings before next month, said Michael Hewson, a London-based analyst at CMC Markets. “Merkel has already said that no decisions will be made before the troika report is delivered. Spain won’t ask for a bailout before the ECB meeting so we’re still waiting.”

Bookings for non-military capital equipment excluding planes slumped 3.4 percent, a Commerce Department report showed today in Washington. Total orders for goods meant to last at least three years jumped 4.2 percent, paced by a 54 percent surge in demand for civilian aircraft.

China Oil Demand

China’s oil-demand growth will lag behind the average rate of the past five years as the country’s slowing economy reduces consumption of gasoil, or diesel, according to Deutsche Bank AG.

Demand in China, which uses more oil than any country apart from the U.S., will increase 3 percent this year and 4.5 percent in 2013, below the five-year average of about 7 percent, Soozhana Choi, the head of Asian commodities research based in Singapore, said in an e-mailed report today. Gasoil use, the biggest contributor to the nation’s oil-consumption mix, rose 1.3 percent in the first half of 2012, Deutsche Bank said.

“While demand will seasonally pick up in the second half, a dramatic recovery, especially in gasoil, is unlikely to materialize given the growth outlook,” she said.

Storm Issac

Tropical Storm Isaac strengthened in the Caribbean Sea on a path projected to bring rain and heavy winds to the Gulf of Mexico next week and threaten energy facilities. The Gulf is home to 29 percent of U.S. oil production, 6.3 percent of natural-gas output and 40 percent of refining capacity, according to the U.S. Energy Department.

“The storm is currently expected to hit the U.S. Gulf as a category 1 Hurricane, which is only a minimal threat for oil assets but on the current calculated path we expect that the U.S. Gulf will at least lose between 2 and 3 million barrels of oil production due to precautionary shutdowns, while crude imports will also be delayed,” Olivier Jakob, managing director of Zug, Switzerland-based research group, said today in an e- mailed report.

United Nations Secretary-General Ban Ki-Moon will attend a summit of the Non-Aligned Movement in Iran’s capital on Aug. 29 to Aug. 31. Hosting the summit next week in Tehran will reduce the Persian Gulf nation’s isolation and help it bypass international sanctions, the state-run Mehr News agency reported today, citing Industries, Mines and Commerce Minister Mehdi Ghazanfari. Ban condemned Iranian remarks threatening Israel’s existence, according to a UN statement on Aug. 17.

New York crude may rise next week on speculation the Federal Reserve will boost stimulus and on concern Middle East tension will disrupt supplies, according to a Bloomberg News survey. Twenty-seven of 47 analysts, or 57 percent, forecast oil will increase through Aug. 31. Fifteen respondents, or 32 percent, predicted that futures will fall and five said there will be little change in prices.

To contact the reporter on this story: Sherry Su in London at lsu23@bloomberg.net

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


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