Crude Oil Trades Near $119 After Supply Gains, Dollar Climbs

By Nesa Subrahmaniyan

Aug. 7 (Bloomberg) -- Crude oil futures traded near $119 a barrel in New York after falling yesterday as U.S. supplies unexpectedly gained amid slowing demand, and the dollar climbed, reducing the appeal of commodities as an inflation hedge.

Crude oil supplies rose 1.61 million barrels last week, and fuel consumption was 2.6 percent lower in the four weeks ended Aug. 1 from a year ago, the U.S. Energy Department said yesterday. New York oil futures fell as low as $117.11 a barrel yesterday, 20 percent below the record $147.27 on July 11, a threshold commonly seen as the start of a bear market.

``Bullish factors on the supply side are being ignored and the market's all about demand and rising supplies,'' said Tetsu Emori, a fund manager at Astmax Co. in Tokyo. ``News about disruptions in Nigeria and explosion at an oil pipeline in Turkey had no impact at all.''

Crude oil for September delivery traded 26 cents, or 0.2 percent higher, at $118.84 a barrel at 9:52 a.m. Singapore time on the New York Mercantile Exchange. Yesterday, oil fell 59 cents, or 0.5 percent, to $118.58 a barrel, the lowest close since May 2.

Oil's decline follows a one-year doubling of prices as the dollar weakened, demand in Asia grew and Iran's nuclear program spurred concern that the country, the Middle-East's second- biggest oil producer, might face a military attack from Israel.

A Turkish section of a BP Plc-led pipeline carrying Azeri oil to Turkey's Mediterranean coast was shut last night after an explosion sparked a fire. Repairs will take at least three to four days, and transportation of oil through the pipeline may be halted until the middle of next week, Mehmet Akif Sam, a spokesman for the Ankara-based Energy Ministry, said yesterday.

U.S. Refinery Demand

U.S. refiners operated at 87 percent of their capacity last week from 87.2 percent a week ago, the Energy Department said. Utilization rates are also down from 91.2 percent about a year earlier, according to Energy Department data.

Falling demand for gasoline has prompted U.S. refiners to reduce oil processing rates.

``Overall refining activity, which in the U.S. is mostly geared towards gasoline production, remained exceptionally low,'' Antoine Halff, head of energy research at Newedge USA LLC in New York, said in a report late yesterday.

U.S. crude supplies rose to 296.9 million barrels in the week ended Aug. 1, the Energy Department said. Gasoline inventories fell for a second consecutive week to their lowest since June. Fuel demand averaged 20.1 million barrels a day during the four weeks ended Aug. 1.

``Despite weak demand, a steep overhang in gasoline inventories is being cleaned up at a record rate,'' Halff wrote in the report.

Dollar Gains

New York crude oil last fell 20 percent from a peak in January 2007, when prices declined as low as $49.90. Prices later rebounded and ended that year 57 percent higher.

Brent crude for September settlement traded at $117.42 a barrel, up 42 cents at 10:04 a.m. Singapore time on London's ICE Futures Europe exchange. Yesterday, the contract closed 70 cents, or 0.6 percent, lower at $117 a barrel after declining to $115.60 a barrel, 22 percent below its record of $147.50.

The dollar had weakened for almost three years, trading at a record low $1.6038 per euro on July 15, drawing investors to energy as a new asset class. Credit restrictions affecting the housing and banking industries are now causing many of these investors to cash out.

The euro traded near a seven-week low against the dollar before a European Central Bank meeting at which President Jean Claude Trichet may keep borrowing costs unchanged and acknowledge economic growth is slowing.

Commodities Slump

The dollar yesterday touched $1.5398 per euro, its strongest against the European currency since June 16. It traded at $1.5432 at 8:52 a.m. in Singapore.

Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, dropped for a fifth session and touched the lowest in almost four months. The index declined 10 percent in July, the biggest monthly slide in 28 years, and is down 16 percent from a record 473.97 on July 3.

The CRB fell 1.17, or 0.3 percent, to 397.24 at 4:03 p.m. in New York, down 16 percent from a record 473.97 on July 3.

Gasoline for September delivery lost 0.71 cent to $2.9493 a gallon yesterday. Futures fell 13 percent last month, the biggest drop since September 2006.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net