Oil, Gold Fall a Second Day as U.S. Fuel Consumption Slows

By Christian Schmollinger

Nov. 6 (Bloomberg) -- Crude oil, gold and copper fell on signs demand for fuel and commodities will be eroded as the global economy slumps.

Gasoline supplies in the U.S., the world's largest energy user, unexpectedly rose 1.12 million barrels to 196.1 million barrels last week, an Energy Department report showed. The worst financial crisis since the Great Depression has curbed demand from builders and carmakers, damped prices and led to a 13 percent decline in the Reuters/Jefferies CRB Index of 19 raw materials in the past month.

``Even a weaker oil price has not restored demand,'' said Tetsu Emori, a fund manager with Astmax Ltd. in Tokyo, Japan's biggest commodities asset manager. ``That's why the inventories have accumulated.''

Crude oil for December delivery declined as much as $1.02 cents, or 1.6 percent, to $64.28 a barrel on the New York Mercantile Exchange. It was at $64.30 a barrel at 3:32 p.m. Singapore time. Prices, which have tumbled 56 percent since reaching a record $147.27 on July 11, are down 33 percent from a year ago. Yesterday, futures plunged 7.4 percent, the biggest drop since Oct. 10.

Bullion for immediate delivery was down 0.4 percent at $737.65 an ounce at 1:55 p.m. in Singapore. Silver for immediate delivery fell 0.4 percent to $10.28 an ounce.

London Metal Exchange copper for three-month delivery declined 2.2 percent to $3,980 a ton after losing 5.4 percent yesterday.

Oil Supplies

Companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a private report based on payroll data showed yesterday. The drop was larger than forecast and followed a revised 26,000 decline in September that was bigger than previously estimated, ADP Employer Services said.

U.S. distillate inventories rose 1.21 million barrels to 127.8 million barrels last week. Analysts forecast that supplies would increase by 1.55 million barrels.

Crude oil stockpiles climbed 54,000 barrels to 311.9 million barrels in the week ended Oct. 31, the department said. A 1 million-barrel gain was forecast. Imports dropped 365,000 barrels to 9.97 million barrels a day. The department released its weekly report yesterday in Washington.

Lower Margins

Oil has also weakened as refiners' processing profits declined. The profit from making gasoline in the U.S. was at minus $5.04 a barrel and has been negative since Sept. 19.

Merrill Lynch & Co. today cut its estimates for oil- refining profit for Singapore, Southeast Asia's biggest crude trading center, citing a slowdown in demand growth and an increase in processing capacity.

The forecast for the complex margin for refiners in Singapore for 2009 was lowered by 20 percent to $7.20 a barrel, and the margin for 2010 reduced by 9 percent to $7 a barrel. Margins could tumble as low as $4 a barrel should Asia fall into a recession, the bank said.

A slowdown in economic growth in China, India and neighboring countries will reduce travel and cut consumption of diesel, gasoline and jet fuel. Oil demand in Asia including Japan will grow 300,000 barrels a day next year while new refinery capacity is at 1.7 million barrels a day, Merrill said.

Economic Concern

``Refining margins have been slipping and that's a reflection of the demand situation for oil products,'' said Astmax's Emori. ``These margins are causing refiners to shut in some production.''

U.S. refiners operated at 85.3 percent of capacity, down 1 percent from last years. Refiners in Japan and South Korea have also limited their production.

Oil also declined because of concern that the U.S. economy will continue to contract. Companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a private report based on payroll data showed yesterday.

The drop was larger than forecast and followed a revised 26,000 decrease in September that was bigger than previously estimated, ADP Employer Services said. The decline in employment was the biggest since November 2002, when the U.S. was emerging from a recession.

The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the economy, dropped to 44.4 from 50.2 in September, the Tempe, Arizona-based group said yesterday. A reading of 50 is the dividing line between growth and contraction.

Brent crude oil for December settlement fell as much as $1.21, or 2 percent, to $60.66 a barrel on London's ICE Futures Europe exchange and traded at $60.67 at 3:33 p.m. Singapore time.

Dollar Factor

Bullion, together with other commodities, is also under pressure from the rallying dollar, Darren Heathcote, head of trading at Investec Bank Ltd. in Sydney, said in a report today.

The higher dollar, while ``offering some relief to producers,'' has been ``noticeably'' affecting consumers, said Hussein Allidina, an analyst at New York-based Morgan Stanley, in a report today. Indian gold imports fell by 27 percent in October from a year earlier, he said.

The dollar rose for the second day to $1.2865 against the euro at 1:55 p.m. in Singapore, from $1.2954 yesterday in New York. Crude oil fell by 1 percent after declining by more than $5 a barrel yesterday on a U.S. Energy Department report showing an unexpected increase in gasoline inventories.

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