June 1 (Bloomberg) -- Crude oil dropped the most in three weeks after data showed that U.S. companies added fewer jobs than forecast last month and the expansion of manufacturing slowed, bolstering concern fuel demand growth will weaken.
Oil fell 2.4 percent after ADP Employer Services said employment rose by 38,000 in May, the smallest gain since September. A 175,000 increase was forecast, according to a Bloomberg News survey. The Institute for Supply Management’s factory index decreased to the lowest level since September 2009, the Tempe, Arizona-based group said today.
“We’ve received disappointing economic news all week,” said Peter Beutel, the president of Cameron Hanover Inc., an energy advisory company in New Canaan, Connecticut. “Consumers are fearful about the future, which translates into lower fuel demand. The bottom line is that oil is overpriced given the economic outlook.”
Crude oil for July delivery declined $2.41 to settle at $100.29 a barrel on the New York Mercantile Exchange. It was the biggest single-session drop since May 11. Futures are up 38 percent from a year ago.
Brent crude oil for July delivery fell $2.20, or 1.9 percent, to end the session at $114.53 a barrel on the London- based ICE Futures Europe exchange.
Prices dropped from the settlement after the American Petroleum Institute reported at 4:30 p.m. in Washington that U.S. crude-oil stockpiles increased 3.47 million barrels to 371.6 million. July oil fell $2.99, or 2.9 percent, to $99.71 a barrel in electronic trading at 4:35 p.m.
Oil rose to a three-week high yesterday in New York when Luxembourg Prime Minister Jean-Claude Juncker signaled more aid for Greece will be announced this month. The contract climbed 2.1 percent to $102.70, the highest settlement since May 10.
“The ADP report came out and added to concerns about demand,” said Phil Flynn, vice president of research at PFGBest in Chicago. “We were on a bailout high earlier. The news that European leaders were working on a new rescue plan for Greece had given the market a boost.”
The ISM’s factory index fell to 53.5 last month from 60.4 in April. The group’s production index decreased to 54 from 63.8 in April. The new orders measure fell to 51.0, the lowest level since June 2009, from 61.7.
Businesses probably added 206,000 jobs in May after a 268,000 gain in April, economists surveyed by Bloomberg News estimate a Labor Department report to show in two days.
“The recent economic numbers are looking pretty weak,” said Carl Larry, director of energy derivatives and research at Blue Ocean Brokerage LLC in New York. “We are all waiting on Friday’s jobless numbers to give us a better idea about how the economy is doing.”
Concern that the economic rebound is faltering sent equities lower. The Standard & Poor’s 500 Index slipped 2.3 percent to 1,314.55, and the Dow Jones Industrial Average dropped 279.65 points to 12,290.14.
“The drop in the stock market is adding to negative sentiment and sending the oil markets even lower,” Beutel said.
Federal Reserve officials have said the jobless rate “remains elevated” at 9 percent, one reason central bankers pledged at their last meeting to complete an asset-purchase plan by the end of this month and to keep borrowing costs near zero.
“Prices won’t drop much because the disappointing economic data opens the door to additional Fed measures to kick start the economy,” Larry said.
China’s manufacturing expanded at the slowest pace in nine months in May as the government extended a campaign to cool inflation and the property market, a survey of companies showed.
The country’s Purchasing Managers’ Index was at 52 from 52.9 in April, the China Federation of Logistics and Purchasing said in an e-mailed statement today. The number was higher than the median forecast of 51.6 in a Bloomberg News survey.
The U.S. and China are the world’s biggest oil-consuming countries, responsible for 32 percent of global demand in 2009, according to BP Plc, which publishes its Statistical Review of World Energy each June.
The Organization of Petroleum Exporting Countries’ crude output increased for a second straight month in May, led by gains from Saudi Arabia and Nigeria, a Bloomberg News survey showed.
Production rose 165,000 barrels, or 0.6 percent, to average 28.895 million barrels a day, according to the survey of oil companies, producers and analysts. Saudi Arabia bolstered output by 75,000 barrels, or 0.8 percent, to 8.925 million barrels a day, the highest level since October 2008. Nigerian production rose 75,000 barrels a day to 2.06 million last month.
An Energy Department report tomorrow will probably show that crude oil stockpiles dropped 1.6 million barrels last week, according to the median of 13 analyst responses in a Bloomberg News survey.
Gasoline consumption slipped 0.3 percent to an average 8.96 million barrels a day in the four weeks ended May 20, 2.1 percent lower than a year earlier, the Energy Department said.
“Gasoline demand is already down from a year ago and may weaken further because of the sluggish economy,” Flynn said.
Oil volume in electronic trading on the Nymex was 610,521 contracts as of 4:36 p.m. in New York. Volume totaled 580,479 yesterday, 13 percent below the average of the past three months. Open interest was 1.51 million contracts.
--Editors: Joe Link, Dan Stets
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