Oil Drops as U.S. Economy Slows and the Dollar Strengthens

Monday, 30 May 2011 06:42 AM

 

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 Oil dropped in New York, headed for its first monthly decline since August on speculation fuel demand may falter amid a slowdown in the U.S. economic recovery and Europe’s continuing debt crisis.

Futures slipped as much as 1 percent before reports this week that may show U.S. employers hired fewer workers in May and manufacturing cooled. Oil also dropped as concern that European governments will struggle to resolve the region’s debt crises weakened the euro against the dollar, reducing the appeal of commodities priced in the U.S. currency. Trading volumes were lower than average, with public holidays in the U.S. and U.K.

“The dollar is a bit stronger today, which is a negative factor for prices,” said Carsten Fritsch, a Commerzbank AG analyst in Frankfurt. Greek debt problems “weigh on the euro.”

Crude for July delivery fell as much as 99 cents to $99.60 in electronic trading on the New York Mercantile Exchange, and was at $100.07 at 10:17 a.m. London time. Prices have fallen 12 percent this month. Brent oil for July settlement lost 43 cents, or 0.4 percent, to $114.60, on the ICE Futures Europe exchange in London. The contract has fallen 8.4 percent this month.

U.S. floor trading will be closed today for the Memorial Day holiday and electronic trades will be booked with tomorrow’s transactions for settlement purposes.

The European benchmark contract traded at a premium of $14.53 a barrel to U.S. futures. 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.

U.S. Economy

The dollar gained 0.2 percent to trade at $1.4288 against the euro after Greek Prime Minister George Papandreou said he’ll press ahead with new austerity measures even as he failed to win backing from opposition parties. A strengthening dollar limits the appeal of commodities priced in the currency as a hedge against inflation.

U.S. manufacturing, which accounts for about 12 percent of the world’s biggest economy, will probably cool following its strongest showing in seven years. The Institute for Supply Management’s factory index fell to 57.6 this month, the lowest level since October, according median forecast in the Bloomberg survey of economists. The Labor Department may say on June 3 payrolls rose 185,000 after a 244,000 gain in April, according to a separate survey.

Employment Data

“The employment data will be the key this week to really see what’s happening” in the U.S., said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted oil will average $100 this year.

Consumer spending in the U.S. rose 0.4 percent last month as food and fuel prices increased, the Commerce Department said May 27. The gain compared with a 0.5 percent median estimate from economists surveyed by Bloomberg News.

Brent has advanced 21 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Iran and Syria. Libya’s rebels are unlikely to resume crude production from territory under their control for “some time,” Reuters reported yesterday, citing Ali Tarhouni, the dissidents’ oil and finance minister.

Yemeni security forces set fire to the tents of protesters in Freedom Square in Taiz, while army helicopters in Syria fired on anti-government demonstrators.

Saudi Arabia’s Prince Alwaleed bin Talal said in an interview on CNN yesterday that an oil price of $70 to $80 a barrel is in the best interests of the kingdom because it diminishes the urgency in the U.S. and Europe to develop alternative energy sources.

Driving Season

The peak U.S. demand period for gasoline starts with the Memorial Day holiday and ends on Labor Day in early September. Prices in the U.S. climbed for six sessions to May 27 and increased 5.3 percent last week, the first weekly gain since April 29.

Hedge-fund managers and other large speculators increased their net-long position in crude futures in the week ended May 24, according to Commodity Futures Trading Commission data.

Managed-money bets, in futures and options combined, that prices will rise outnumbered short positions by 225,677 futures, the Washington-based regulator said in its weekly Commitments of Traders report. Net long positions increased by 4,112 contracts, or 1.86 percent, from a week earlier.

--With reporting by Ben Sharples in Melbourne. Editor: John Buckley, Torrey Clark

To contact the reporter on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

© Copyright 2014 Bloomberg News. All rights reserved.

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