Oil Is Steady After Falling on Signs Global Economy Is Slowing

By Mark Shenk

July 9 (Bloomberg) -- Crude oil was trading near $136 a barrel in New York after falling the most in three months yesterday, as signs that the global economy may slow prompted investors to sell commodities.

Oil in New York has dropped more than $9 since reaching a record $145.85 a barrel on July 3. Gold, silver, copper and corn also declined. The U.S. economy has sagged amid credit-market and housing slides. Contracts to buy previously owned homes fell more than forecast in May, signaling prices have yet to bottom.

``All the bad economic news is making people take a second look at commodities,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Commodities were purchased as a hedge against inflation. A global recession is looking more likely, and it's the greatest weapon in the fight against inflation.''

Crude oil for August delivery fell 16 cents to $135.88 a barrel at 8:07 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, oil tumbled $5.33, or 3.8 percent, to settle at $136.04 a barrel, the biggest drop since March 31. Futures lost 6.4 percent in the previous two days, the biggest two- session decline since March 19 and 20. Prices are up 87 percent from a year ago.

An index of pending U.S. home resales fell 4.7 percent following a revised 7.1 percent gain in April that was greater than previously reported, the National Association of Realtors said today in Washington. The prospect of further price declines may be discouraging offers, while rising mortgage rates and tougher lending standards make it harder to qualify for loans.

Economy Concern

``There is more concern about the U.S. economy,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``There was a feeling that the U.S. doesn't matter because of growth elsewhere, but the country is still responsible for about 25 percent of world oil consumption.''

Sales of services and manufactured goods in the U.K. fell in the second quarter, posing ``serious risks'' that the economy will tumble into a recession, the British Chambers of Commerce said today. An index based on a survey of 4,758 services companies fell to minus 2, the lowest since 1992, from 17, according to the London-based lobby group.

``We have strong concerns about the sharp rise in oil prices,'' the Group of Eight said in a statement today in Tokyo, where the leaders are holding their annual summit. ``The world economy is now facing uncertainty and downside risks persist.''

The U.S. is ``very close to a disaster'' because it imports almost 70 percent of its oil, investor Boone Pickens said during an interview with CNBC, unveiling a strategy to limit the country's dependence on foreign crude.

Speculators' Role

Pickens, founder and chairman of Dallas-based BP Capital LLC, made his comments as Congress has been investigating the role of speculators in oil's rise over the past year. Pickens said the gains are because global demand exceeds supplies.

Oil also fell today as negotiations continued between Iran and western governments over the country's nuclear program. President Mahmoud Ahmadinejad dismissed the possibility of a war with the U.S. and Israel over his country's nuclear work, saying Iran is trying to avoid conflict.

``We're making the utmost effort for providing peace and security at the world level,'' the Iranian president told reporters yesterday in Kuala Lumpur, where he is attending a summit of the Eight Islamic Developing Countries. ``Don't worry, there won't be any war in the future. Mainly they are focusing on some sort of propaganda or psychological war.''

Iran Blockade

Iran has said it may blockade the Strait of Hormuz, the shipping lane for a fifth of the world's crude, if its nuclear facilities are attacked. The country has the second-biggest proved oil reserves and is the second-biggest producer in the Organization of Petroleum Exporting Countries.

``There's been some reassurance about the dispute with Iran, which is taking some of the risk premium out of the oil market,'' said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts.

Brent crude oil for August settlement declined $5.44, or 3.8 percent, to settle at $136.43 a barrel on London's ICE Futures Europe exchange, the biggest drop since March 19. Prices climbed to a record $146.69 on July 3.

The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, declined 2.6 percent to 1,633 today, the biggest decline since March 19. Gold fell for a fourth day.

The U.S. dollar rose against the euro, limiting the appeal of commodities as a hedge against inflation. The currency climbed 0.5 percent to $1.562 per euro at 3:13 p.m. in New York, from $1.5726 yesterday.

``Any time the dollar moves higher, you are going to see folks shift away from the commodity markets,'' Mueller said.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.