Crude Oil Falls in New York After U.S. Supplies Climb to a Six-Month High

Crude oil dropped to a two-week low as a U.S. Energy Department report showed supplies surged and on signals that American economic growth is slowing.

Oil fell 1.6 percent after the report showed stockpiles rose 3.42 million barrels to 366.5 million last week, the highest level since October. Inventories were forecast to gain 2 million barrels, a Bloomberg News survey showed. Lower-than- forecast expansion in service industries and employment reduced optimism about the economic outlook.

“The inventory numbers were much more bearish than expected,” said Andre Julian, chief financial officer and senior market strategist at OpVest Wealth Management in Irvine,California. “We were already poised for a move lower when the inventory data and the negative economic numbers came out. This is looking like a perfect time to take risk off the table.”

Crude oil for June delivery fell $1.81 to $109.24 a barrel on the New York Mercantile Exchange, the lowest settlement since April 19. Prices are up 32 percent from a year ago.

Stockpiles of crude oil at Cushing, Oklahoma, the delivery point for the New York-traded West Texas Intermediate grade, gained 102,000 barrels to 40.5 million.

Gasoline inventories fell 1.05 million barrels to 204.5 million last week, the lowest level since June 2009. Supplies were forecast to drop 500,000 barrels, according to the median of 15 analyst responses in the Bloomberg News survey. Stockpiles of distillate fuel, a category that includes heating oil and diesel, declined 1.4 million barrels to 145.1 million.

Gasoline for June delivery decreased 0.69 cent to settle at $3.3225 a gallon in New York.

Surging Pump Prices

Regular gasoline at the pump, averaged nationwide, increased 1.5 cents to $3.982 a gallon yesterday, the most since July 25, 2008, AAA said on its website.

Gasoline consumption dropped 2.2 percent to 8.94 million barrels a day last week, the report showed.

“Gasoline demand has slipped to the lowest level since the week ended April 1,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “High pump prices are obviously having an impact on demand and may be hurting the overall economy as well.”

Refineries operated at 82.8 percent of capacity, up 0.1 percentage point from the prior week. That’s down from 89.6 percent of capacity a year earlier.

Employment Gain

Oil also declined after U.S. companies added fewer jobs than forecast. Employment rose by 179,000 in April from a revised 207,000 the prior month, according to figures from ADP Employer Services. The median estimate of 34 economists surveyed by Bloomberg News called for a 198,000 increase.

Businesses added 200,000 jobs in April and the jobless rate held at 8.8 percent, economists project a Labor Department report to show in two days.

The Institute for Supply Management’s index of non- manufacturing companies slumped to 52.8 in April, the lowest level since August, from 57.3 a month earlier. The median forecast of 73 economists surveyed by Bloomberg News was 57.5. Readings greater than 50 signal growth.

The Tempe, Arizona-based group’s index of the industry, which accounts for about 90 percent of the economy, averaged 56.1 in the five years to December 2007, when the last recession began. The ISM services survey covers industries that range from utilities and retailing to health care, finance and transportation.

The Standard & Poor’s 500 Index declined 0.7 percent to 1,347.01, and the Dow Jones Industrial Average slipped 90.06 points to 12,717.45 at 3:08 p.m.

Inflation Concerns

“China and India are taking steps to tame inflation, which could further slow economic growth,” Julian said.

China’s central bank said in a first-quarter monetary policy report published yesterday that taming inflation is its top priority.

The Reserve Bank of India announced a half a percentage point increase in the benchmark repurchase rate to 7.25 percent yesterday, the biggest change since July 2008. GovernorDuvvuri Subbarao indicated the central bank would tighten borrowing costs further and projected inflation will stay at “elevated levels” until September.

China and India are the world’s second- and fourth-biggest oil-consuming countries, responsible for 14 percent of demand in 2009, according to BP Plc, which publishes its BP Statistical Review of World Energy each June. The U.S. and Japan are the largest and third-biggest consumers.

The Thomson Reuters/Jefferies CRB Index of 19 raw materials dropped 1.8 percent to 358.63, the lowest level since March 30.

Middle East Unrest

Oil has climbed 20 percent in New York this year as unrest in the Middle East and North Africa toppled leaders in Egypt and Tunisia and spread to Libya, Algeria, Bahrain, Iran, Oman, Syria and Yemen. Forces loyal to Muammar Qaddafi attacked rebel-held cities in western Libya as ministers from 22 nations prepared to meet in Rome to discuss ways to end the fighting.

Brent crude for June settlement slipped $1.26, or 1 percent, to end the session at $121.19 a barrel on the London- based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 540,711 contracts as of 3:09 p.m. in New York. Volume totaled 529,239 contracts yesterday, 27 percent below the average of the past three months. Open interest was 1.62 million contracts.

(Source: http://www.bloomberg.com/news/2011-05-04/crude-oil-declines-a-third-day-in-new-york-after-u-s-inventories-increase.html)