Bloomberg News

Oil Trades Near One-Week Low as U.S. Manufacturing Contracts

September 05, 2012

Oil traded near the lowest price in almost a week in New York after a report showed manufacturing declined in the U.S., the world’s biggest crude consumer.

Futures were little changed after slipping 1.2 percent yesterday, the most since Aug. 2. U.S. manufacturing slid for a third month in August, according to the Institute for Supply Management’s factory index yesterday, adding to contractions in Europe and China. Concern that supply will increase also weighed on oil as companies resumed output in the Gulf of Mexico. Crude stockpiles dropped 5.5 million barrels last week as Hurricane Isaac shut offshore platforms, according to a Bloomberg survey before a government report tomorrow.

“The somewhat disappointing ISM figure in the U.S. clouds the demand outlook,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “It’s showing a picture of relatively weak conditions and the possibility of softness in production output for the next few months. For oil, that comes against a background where prices have risen a long way already and there’s adequate supply capacity.”

Oil for October delivery was at $95.18 a barrel, down 11 cents, in electronic trading on the New York Mercantile Exchange at 2:21 p.m. Singapore time. The contract decreased $1.17 yesterday to close at $95.30, the lowest level since Aug. 30. Front-month prices are down 3.7 percent this year.

Brent oil for October settlement fell 26 cents to $113.92 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate was at $18.75, down from $18.88 yesterday.

Manufacturing Contraction

Oil may extend its decline in New York as futures drop out of an upward-sloping trend channel, signaling a breach of technical support, according to data compiled by Bloomberg. This channel started from $77.28, the 2012 intraday low on June 28. Investors typically sell contracts when futures fall below chart-support levels.

The ISM factory index slid to 49.6 last month, the lowest level since July 2009, from 49.8 in July, the Tempe, Arizona- based group said yesterday. Economists in a Bloomberg survey projected an August reading of 50, the dividing line between expansion and contraction.

A gauge of manufacturing in the 17-nation euro area based on a survey of purchasing managers was revised lower to 45.1 in August from 45.3 estimated earlier, London-based Markit Economics said Sept 3. The index has held below 50 for 13 months. A similar survey for China showed the fastest contraction in August since March 2009, Markit and HSBC Holdings Plc said the same day.

Fuel Supplies

Crude markets are “reasonably well supplied,” Maria van der Hoeven, the head of the Paris-based International Energy Agency, told reporters in New Delhi yesterday. “High prices are always a concern to the IEA members and also to others.”

Members of the agency are free to tap emergency reserves as long as they maintain 90 days of stocks, van der Hoeven said. The IEA’s 28-member countries released 60 million barrels of crude and oil products in June 2011 after Libyan output was disrupted by an armed uprising against Muammar Qaddafi.

U.S. gasoline stockpiles probably fell 3 million barrels last week, according to the median estimate of nine analysts in the Bloomberg survey before the Energy Department report. Distillate supplies, a category that includes heating oil and diesel, dropped 1.5 million barrels, the survey shows. The American Petroleum Institute will release separate inventory data today.

Production lost because of Isaac totals about 7.8 million barrels of oil and 33.7 billion cubic feet of natural gas, LCI Energy Insight, an energy-analysis company in El Paso, Texas, said on its website. About 52 percent of crude output and 29 percent of gas production from the Gulf of Mexico remained shut as of 12:30 p.m. East Coast time yesterday, the Bureau of Safety and Environmental Enforcement said on its website.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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