Oil retreated for the third time in four days as data showed weaker U.S. economic growth and crude inventories rose to a three-month high.
Prices fell 1 percent as more Americans than forecast submitted claims for unemployment insurance last week and manufacturing contracted in the New York and Philadelphia regions. Oil stockpiles increased to 375.9 million barrels last week as production grew to an 18-year high.
“The jobless claims were very high and the economic news was bearish,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Demand will remain soft given how the economy is and production has been very high.”
Crude oil for December delivery slid 87 cents to settle at $85.45 a barrel on the New York Mercantile Exchange. Prices are down 14 percent this year. The more active January contract dropped 88 cents, or 1 percent, to $85.87.
Brent crude for January settlement declined 47 cents, or 0.4 percent, to $108.01 on the London-based ICE Futures Europe exchange. The December contract, which expires today, gained $1.37, or 1.2 percent, to settle at $110.98.
U.S. jobless claims climbed to 439,000 in the week ended Nov. 10, the most since April 2011, the Labor Department reported. Analysts surveyed by Bloomberg had expected the claims to reach 375,000. Several states said the increase was due to Hurricane Sandy, which hit the northeastern part of the U.S. in late October, according to the department.
“Prices are reflecting the bad economic news,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The weak economy is the biggest overall factor in the oil market.”
The Federal Reserve Bank of New York’s general economic index was minus 5.2 this month after minus 6.2 in October. Manufacturing contracted as Sandy knocked out electrical power and limited activity. The Philadelphia Fed’s general economic index decreased to minus 10.7.
“I still think economic uncertainty is the primary driver of the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
Crude inventories grew 1.09 million barrels in the week ended Nov. 9, the Energy Department reported. Analysts surveyed by Bloomberg had expected a gain of 2.65 million. U.S. oil production rose for a 10th week to 6.71 million barrels a day, the most since May 1994.
Gasoline stockpiles slid 440,000 barrels to 201.9 million and distillate fuels, which include heating oil and diesel, dropped 2.54 million barrels to 115.5 million. Gasoline demand averaged 8.64 million barrels a day in the four weeks ended Nov. 9, down from 9.16 million on Aug. 31.
The U.S. is the world’s biggest oil consumer, using 18.8 million barrels a day in 2011, according to BP Plc (BP/)’s Statistical Review of World Energy.
Crude also declined with U.S. equities, which fell as Wal- Mart Stores Inc. (WMT:US) forecast earnings that missed estimates. The Standard & Poor’s 500 Index fell 0.5 percent as of 3:09 p.m.
“The strong production and inventory numbers are bearish,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “Oil followed the equities.”
Oil rose earlier on concern that escalating Middle East tension will disrupt supplies. Israel and Palestinian militants in the Gaza Strip exchanged rocket fire and airstrikes a day after Israel killed Hamas’s military leader. Defense Minister Ehud Barak said Israel may carry out a ground operation in Gaza.
Electronic trading volume on the Nymex was 518,158 contracts as of 3:03 p.m. Volume totaled 700,161 contracts yesterday, 32 percent above the three-month average. Open interest was 1.54 million.
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