Crude Oil Falls for a Second Day on U.S. Manufacturing Slowdown

By Christian Schmollinger and Nesa Subrahmaniyan

Nov. 4 (Bloomberg) -- Crude oil fell for a second day after a report showed manufacturing in the U.S. contracted in October at the fastest pace in 26 years, signaling weaker fuel demand.

Oil has tumbled 57 percent from a record $147.27 a barrel in July as the U.S. economy shrank in the third quarter by the most since 2001. U.S. crude inventories probably rose last week for a sixth week because of declining demand, a Bloomberg News survey of analysts showed.

``You must remember that the U.S. is the single largest consumer of crude oil and one where there has been a large shift in consumption, so these numbers matter,'' said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney. ``The mood of the market is one of worry about demand- side weakness.''

Crude oil for December delivery fell as much as 88 cents, or 1.4 percent, to $63.03 a barrel on the New York Mercantile Exchange. It was trading at $63.45 a barrel at 3:42 p.m. in Singapore. Prices are down 33 percent from a year ago.

Yesterday, futures lost $3.90, or 5.8 percent, to $63.91 a barrel, the biggest drop since Oct. 22. Oil futures declined 33 percent in October, a monthly record, amid a global economic slowdown. The previous record-price drop was in February 1986.

The Institute for Supply Management's factory index fell to 38.9, worse than anticipated by economists surveyed by Bloomberg News and the lowest level since September 1982, the Tempe, Arizona-based group reported yesterday.

Falling Demand

U.S. fuel demand during the past four weeks averaged 18.9 million barrels a day, down 7.8 percent from a year ago, an Energy Department report showed Oct. 29. Demand in the four weeks ended Oct. 10 averaged 18.6 million barrels a day, down 9.9 percent from a year earlier and the lowest since July 1999.

China Petroleum & Chemical Corp., Asia's biggest refiner, will process less oil at units because of falling demand, its parent said yesterday. South Korea lowered imports by 1.4 percent in October. China and South Korea are the second- and ninth- biggest oil consuming countries. Credit Suisse Group AG, Switzerland's second-biggest bank, cut its 2009 and 2010 oil price forecasts on concern over slower Chinese demand.

Next year's oil price forecast was cut to $58 a barrel from $73, while the estimate for 2010 was reduced to $78 from $98 at Credit Suisse. The forecasts are for Brent crude.

``Our oil price forecast has changed on the back of the latest set of economic data from China, which suggests a more severe economic slowdown is underway there,'' Credit Suisse analysts Tao Ly and Stuart Joyner wrote in a note today.

Goldman Sachs Group Inc.'s commodity research analysts said in a report yesterday the ``downside risk'' to its year-end forecast of $70 a barrel for crude oil prices has increased amid signs of slowing emerging market demand.

OPEC Action

Oil production by members of the Organization of Petroleum Exporting Countries averaged 32.18 million barrels a day last month, down 70,000 barrels a day from September, a Bloomberg News survey of oil companies, producers and analysts showed yesterday. September output was revised higher by 60,000 barrels a day.

OPEC ministers agreed Oct. 24 in Vienna to cut supply by 1.5 million barrels a day starting in November. The reduction is from the existing daily quota for 11 members of 28.8 million barrels.

``The cuts in the physical market have begun,'' said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore. ``OPEC members are following through'' with production cuts.

Output Targets

OPEC members Nigeria, Iran, Kuwait and the United Arab Emirates have cut shipments to customers. Saudi Arabia, the world's biggest oil producer, hasn't yet notified customers of any reduction in shipments.

``Saudi is important of course because it's the largest,'' said Commonwealth Bank's Moore. ``But you've got 10 other members and the more they keep to the targets, the more that the compliance will hold.''

OPEC, producer of more than 40 percent of the world's crude, is next due to meet on Dec. 17 in Algeria.

Brent crude oil for December settlement on London's ICE Futures Europe exchange fell as much as 88 cents, or 1.5 percent, to $59.60 a barrel. It traded at $59.81 at 3:42 p.m. Singapore time.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.