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Oil Drops on Demand Concern Amid Signs Economy Slowing

12 Jul 2012

Oil fell in New York on concern that global demand may falter after South Korea unexpectedly cutinterest rates, Australia’s jobless rate rose and economists said European manufacturing stagnated last month.

Futures slid as much as 0.9 percent. Prices surged 2.3 percent yesterday after an Energy Department report showed a bigger-than-expected drop in U.S. crude stockpiles. Gasoline inventories rose almost six times as much as forecast and fuel use declined, the report also showed. Industrial output in the euro area was probably unchanged in May from April, according to a separate Bloomberg survey taken before the European Union’s statistics office releases data today.

“The supply side has been tightening, but the demand side of the equation is still very poor,” said Guy Wolf, a strategist at Marex Spectron Group Ltd., a London-based commodities broker. “The European liquidity drain is starting to impact heavily on their domestic economy. That is occurring as China slows aggressively and the U.S. recovery has stalled.”

Crude for August delivery declined as much as 80 cents to $85.01 a barrel in electronic trading on the New York Mercantile Exchange. It was at $85.14 at 9:41 a.m. London time. The contract yesterday climbed $1.90 to $85.81, the highest close since July 9. Prices have decreased 14 percent this year.

Brent oil for August settlement on the London-based ICE Futures Europe exchange slid as much as 88 cents, or 0.9 percent, to $99.35 a barrel. The European benchmark contract was at a premium of $14.29 to New York-traded West Texas Intermediate grade. The spread was $14.42 yesterday, the widest in four weeks.

Greater Demand

The International Energy Agency forecasts faster growth in world oil demand next year as the global economy recovers, in contrast to the slower expansion that OPEC projected in a report yesterday.

Oil consumption will increase by a “relatively muted” 1 million barrels a day, or 1.1 percent, to an average of 90.9 million a day in 2013, the Paris-based adviser said today in its first outlook for the coming year. That’s a higher growth rate for next year than the 800,000 barrels a day that the Organization of Petroleum Exporting Countries estimated yesterday. Demand in emerging economies will surpass that of developed nations for the first time in 2013, the IEA forecasts.

Oil in New York has technical support along the middle Bollinger Band on the daily chart, around $83.38 a barrel today, according to data compiled by Bloomberg. Futures have halted declines near that indicator every day since July 6. Buy orders tend to be clustered close to chart-support levels.

Manufacturing Slows

Industrial production in the euro area probably failed to increase in May after two months of decline, according to the median estimate of economists surveyed by Bloomberg. China may say tomorrow that its economy expanded 7.7 percent in the second quarter from a year earlier, the slowest pace in more than three years, a separate survey showed.

Australian employers unexpectedly cut payrolls in June, and the jobless rate rose for a second month, to 5.2 percent from 5.1 percent, data from the statistics bureau in Sydney showed.South Korea reduced its benchmark seven-day repurchase rate by a quarter of a percentage point, highlighting concern that exports are threatened by Europe’s failure to resolve its debt crisis.

U.S. gasoline stockpiles rose 2.8 million barrels last week, compared with a median estimate of 500,000 in the Bloomberg survey of analysts. Inventories have increased the past four weeks, the longest stretch of gains this year, the Energy Department data showed. Distillate inventories, a category that includes heating oil and diesel, rose 3.1 million barrels compared with a projected 625,000-barrel gain. Crude supplies slid 4.7 million barrels.

Fuel Consumption

Total fuel use in the U.S. dropped 1.1 percent to 19 million barrels a day in the four weeks ended July 6, the biggest decline since February, the report showed.

Global oil consumption will rise by an average of 900,000 barrels a day this year, or about 1 percent, OPEC projected yesterday in its monthly report. Growth will slow in 2013 to 800,000 barrels a day as the economy cools, according to the 12-member group’s first assessment for next year.

Markets will be “comfortable” because of increased production by non-OPEC members, the report showed. OPEC, which accounts for about 40 percent of global supplies, said it will need to provide an average 29.6 million barrels a day in 2013. That’s 300,000 barrels less than this year and about 1.8 million below current production rates.