Crude Oil Falls a Second Day as Slowing Economy Damps Demand

By Grant Smith

Aug. 1 (Bloomberg) -- Oil fell for a second day, after posting its biggest monthly drop since 2004 in July, on concern global consumption is falling amid slowing economic growth.

Demand is faltering in the U.S., the world's largest energy user, where the unemployment rate rose to its highest in four years, government data showed today. Manufacturing in China, the world's second-biggest energy consumer, contracted for the first time since a survey of purchasing managers began in 2005.

``The growing prospect of demand destruction in the U.S., and potentially other parts of the world, combined with technical indicators that suggest it's time to sell, is keeping prices under pressure,'' said Christopher Bellew, senior broker at Bache Commodities Ltd. in London.

Crude oil for September delivery declined as much as $1.98 cents, or 1.6 percent, to $122.10 a barrel on the New York Mercantile Exchange. The contract traded at $122.92 a barrel at 1:41 p.m. London time.

Futures dropped 11 percent in July, the biggest one-month drop since December 2004. Yesterday, the September contract fell $2.69, or 2.1 percent, to settle at $124.08 a barrel.

Oil prices have slipped more than $23 a barrel, or 16 percent, from the $147.27 record on July 11 on signs of declining demand in the U.S., which consumed about 24 percent of the world's crude in 2007.

U.S. payrolls fell by 51,000, less than forecast, after a decline of 51,000 in June that was smaller than initially reported, the Labor Department said today in Washington. The jobless rate rose to 5.7 percent, the highest since March 2004, from 5.5 percent the prior month.

Economy Shrank

The U.S. economy shrank at the end of 2007 and grew less than forecast in this year's second quarter. Gross domestic product increased at a 1.9 percent annualized rate, the Commerce Department said in Washington yesterday, compared with the median projection of 2.3 percent in a Bloomberg News survey.

``U.S. economic indicators are weighing heavily on sentiment,'' said Victor Shum, senior principal at Purvin & Gertz Inc. in Singapore. ``Negative refining margins are discouraging refiners from making gasoline.''

China's Purchasing Managers' Index fell to a seasonally adjusted 48.4 in July from 52 in June, the China Federation of Logistics and Purchasing said today in an e-mailed statement.

Brent crude oil for September settlement fell as much as $2.04, or 1.7 percent, to $121.94 a barrel, and traded at $122.30 a barrel at 1:37 p.m. London time on London's ICE Futures Europe exchange. Yesterday, the contract declined $3.12, or 2.5 percent, yesterday to close at $123.98 a barrel.

Crude prices may fall next week on slowing demand. Thirteen of 29 analysts surveyed by Bloomberg News, or 45 percent, said prices will drop through August 8. Seven of the respondents, or 24 percent, said oil will rise and nine forecast little change. Last week 46 percent expected a decline.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net.