Oil Drops as Recession Raises Concerns of Falling Fuel Demand

By Christian Schmollinger

Nov. 27 (Bloomberg) -- Crude oil fell in New York after the latest economic reports in the U.S. showed a deepening recession that may cut fuel demand in the world’s largest oil user.

Consumer spending fell the most in 7 years and orders for durable goods including refrigerators and washing machines declined twice as much as forecast, the Commerce Department said yesterday. Gasoline demand dropped 1.3 percent from last week, the Energy Department said yesterday in its weekly report.

“While we continue to get weaker-than-expected macro data, I think it’s going to be hard to call a low for the crude market,” said Toby Hassall, an analyst at Commodity Warrants Australia in Sydney. “The bias is definitely to the downside.”

Crude oil for January delivery dropped as much as $1.04, or 1.9 percent, to $53.40 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $53.48 a barrel at 9:40 a.m. Singapore time. Futures have dropped 63 percent since reaching a record $147.27 on July 11.

Yesterday, crude futures increased $3.67, or 7.2 percent, to settle at $54.44 a barrel. Markets in the U.S. will be shut today because of the Thanksgiving holiday.

“I think there would have been quite a few traders out there that wanted to square up their short positions heading into the long weekend,” said Hassall. “There would have been a bit more buying of contracts.”

A short position is when a trader has sold more futures contracts than he has bought and is a bet that prices will fall.

U.S. Supplies, OPEC

Brent crude oil for January settlement fell as much as 67 cents, or 1.2 percent, to $53.25 a barrel on London’s ICE Futures Europe exchange. It was at $53 a barrel at 9:49 a.m. Singapore time. The contract gained $3.57, or 7.1 percent, to settle at $53.92 a barrel yesterday.

U.S. crude-oil supplies rose 7.28 million barrels to 320.8 million barrels last week, according to the Energy Department. It was the ninth-straight increase, the longest stretch since April 2005. Stockpiles were forecast to climb 1 million barrels, according to the median of 14 analyst estimates in a Bloomberg News survey.

Gasoline inventories rose 1.84 million barrels, or 0.9 percent, to 200.5 million barrels, the department said. A 500,000 barrel gain was forecast, according to the survey.

Crude oil demand may climb as refineries boost processing. Refineries increased operating rates by 1.3 percentage points to 86.2 percent of capacity, the highest since September. A 0.1 percentage-point gain was forecast.

The Organization of Petroleum Exporting Countries, which controls more than 40 percent of the world’s crude, is due to meet in Cairo on Nov. 29.

OPEC nations may cut output for the second time in as many months after recessions in the U.S. and Europe dragged oil below $50 a barrel. Last month, they agreed to cut production by 1.5 million barrels a day.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.