West Texas Intermediate fell from a 16-month high as an unexpected drop in purchases of existing homes and weaker-than-expected corporate earnings raised concern that the U.S. economy will stall, curbing fuel demand growth.
Prices slid 1.1 percent as sales of previously owned houses fell 1.2 percent to a 5.08 million annualized rate in June, the National Association of Realtors said. Economists surveyed by Bloomberg forecast a 5.26 million pace. McDonald’s Corp. (MCD:US)’s second-quarter profit (MCD:US) and revenue trailed analysts’ estimates. WTI’s 14-day relative strength index fell below 70 for the first time in 21 days, and WTI’s discount to Brent widened.
“The market is falling off and the data isn’t supportive,” said Kyle Cooper, Houston-based director of commodities research at IAF Advisors. “Earnings are going to be important for oil. Prices are overvalued. I don’t think it should be above $100.”
WTI for August delivery, which expired today, slid $1.14 to settle at $106.91 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 1.8 percent below the 100-day average for the time of day at 3:20 p.m. The contract settled at $108.05 July 19, the most since March 2012. The more actively traded September futures were down 93 cents at $106.94.
Brent for September settlement gained 8 cents to end the session at $108.15 a barrel on the London-based ICE Futures Europe exchange. Volume was 20 percent below 100-day average. The European benchmark grade’s premium to WTI widened to $1.21 from 20 cents on July 19. The gap reached $23.44 a barrel in February. WTI rose to 8 cents above Brent in intraday trading.
The number of houses for sale at the end of last month was the fewest for any June since 2001 as rising prices depleted the number of cheaper houses on the market.
The U.S., the world’s biggest oil-consuming country, accounted for about a fifth of world’s consumption in 2012, according to BP Plc (BP/)’s Statistical Review of World Energy.
McDonald’s, the world’s biggest restaurant chain, fell the most in nine months on the earnings. The company has faced a U.S. consumer environment where unemployment has been stuck above 7.5 percent since December 2008. McDonald’s said economic weakness would hurt results for the remainder of the year.
“Worse-than-expected earnings are raising economic concerns and demand worries,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
Gasoline consumption in the U.S. dropped 6.1 percent in the week ended July 12 to 8.73 million barrels a day, the Energy Information Administration said on July 17.
Total petroleum use fell in June to the lowest level for the month in 16 years, the American Petroleum Institute said on July 18. Petroleum deliveries, a measure of demand, dropped 1 percent from a year earlier to 18.7 million barrels a day, the least for the month since 1997, the industry-funded API said.
WTI’s 14-day relative strength index had been above 70 for 11 days through July 19, the longest stretch since 2002, according to data compiled by Bloomberg. Some traders see a reading above 70 as a sell signal. The index fell to 68.9 today.
Oil climbed earlier after finance ministers from Group of 20 nations said they will pursue “carefully calibrated and clearly communicated” policy moves so that the U.S. and Japan don’t cause cross-border damage when they start rolling back stimulus. The statement followed a two-day meeting in Moscow.
“One of the supportive elements that we have is the G-20 and their statement about the economy,” Flynn said.
The G-20 heeded calls from emerging-market countries to guard against shockwaves when U.S. growth is secure enough for the Federal Reserve to cut back on its bond buying, according to the statement.
Fed Chairman Ben S. Bernanke opened the door to a delay in reducing the central bank’s bond-buying program on July 18, saying in his semiannual testimony to Congress last week that it will depend on data that economists say are falling short of the Fed’s own forecasts. The Fed’s $85 billion in monthly asset purchases “are by no means on a preset course,” he said.
Money managers increased net-long positions on WTI, or wagers that prices will climb, by 8 percent to 304,383 futures and options combined in the seven days ended July 16, the U.S. Commodity Futures Trading Commission said in its weekly report on July 19. That’s the highest level since April 2011.
Implied volatility for at-the-money WTI options expiring in September was 22.2 percent, compared with 21.5 percent on July 19, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 538,539 contracts as of 3:20 p.m. It totaled 801,653 contracts July 19, 22 percent above the three-month average. Open interest was 1.85 million contracts.
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