Oil Rebounds From Biggest Decline in Two Years; Down 12 Percent This Week

Oil traded near the lowest in almost two months in New York and headed for the biggest weekly drop in a year as a surprise increase in U.S. jobless claims added to signs of slower growth in the world’s largest crude consumer.

Futures were 0.2 percent lower after declining 8.6 percent yesterday, the biggest fall in more than two years. U.S unemployment claims rose the most since August and German factory orders slipped. A report today may show the U.S. generated fewer jobs in April. Oil also slid as the dollar advanced after European Central Bank President Jean-Claude Trichet said he wouldn’t raise interest rates.

“The spike in weekly jobless claims and the drop in German factory orders follow a series of weak economic data,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The ECB is stepping back from tightening, which is ending the commodity inflation trade. This is a significant recasting of the environment.”

Crude for June delivery was at $99.56 a barrel, down 24 cents, in electronic trading on the New York Mercantile Exchange at 10:08 a.m. Sydney time. Yesterday, the contract fell $9.44 to $99.80, the lowest settlement since March 16 and the biggest percentage drop since April 20, 2009. Prices are down 12.6 percent this week, the most since the week ended May 7, 2010, and are 29 percent higher the past year.

Brent crude oil for June settlement plunged $10.39, or 8.6 percent, to $110.80 a barrel, the lowest since March 16, on the London-based ICE Futures Europe exchange yesterday.

Technical Support

The drop came a day after Bloomberg’s Fear and Greed Indicator generated a sell signal on New York crude for the first time since March 11. Before the market opened Kilduff said oil may fall as low as $98 a barrel if it settles below its 30- day moving average. Crude closed below its 30-day and 50-day moving averages for the first time since February.

Oil’s relative strength index, a measure of how rapidly prices are rising or falling, dropped to 32, the lowest since Aug. 24. A reading of 30 typically indicates the commodity may rebound.

Oil options volatility increased and the price of the most actively traded contract, the June $100 put, rose 1,304 percent. The option, which gives the holder the right to sell crude for June delivery at $100 a barrel, climbed to $2.95 yesterday from 21 cents on May 4, with 14,904 traded. It was at $3.17 today.

Brent, the European benchmark, traded at a premium of $11 a barrel to U.S. futures yesterday. The difference between front- month contracts in London and New York surged to a record $19.54 on Feb. 21. It averaged 76 cents last year.

Jobless Benefits

Applications for jobless benefits in the U.S. jumped by 43,000 to 474,000 in the week ended April 30, Labor Department figures showed. Economists in a Bloomberg News survey estimated they would fall to 410,000. A report today may show employers in the world’s largest economy hired 185,000 additional workers in April, compared with 216,000 in March.

Factory orders in Germany unexpectedly dropped 4 percent in March from February, the Economy Ministry in Berlin said. Economists forecast a gain of 0.4 percent, according to a Bloomberg News survey.

The dollar increased as much as 2.1 percent to $1.451 per euro yesterday, the highest level since April 26. A stronger dollar curbs investor demand for raw materials. Commodity prices plunged the most since 2009. Silver has fallen 25 percent in four days, the biggest decline since 1983.

Oil has climbed 9.4 percent in New York this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Algeria, Bahrain, Iran, Oman, Syria and Yemen. The Obama administration said it will permit Libyan rebels to draw on the $33 billion in Libyan assets frozen by U.S., as allied nations opposing Muammar Qaddafi looked for further measures to force him from power.

(Source: http://www.bloomberg.com/news/2011-05-06/oil-near-two-month-low-below-100-heads-for-biggest-weekly-drop-in-a-year.html)