Oil Is Steady After Falling on U.S. Manufacturing Contraction

By Christian Schmollinger

Nov. 4 (Bloomberg) -- Crude oil was little changed after falling more than $3 a barrel yesterday on a report showing manufacturing in the U.S. contracted in October at the fastest pace in 26 years, a signal that fuel consumption will decline.

Oil prices have tumbled the past four months as the weak U.S. economy curbed fuel use in the word's biggest oil-consuming country. Futures also dropped because reduced imports by Asian refiners reinforced concern that a demand slowdown is spreading to emerging markets.

``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 was at $63.79 a barrel, down 12 cents, at 9:22 a.m. Singapore time on the New York Mercantile Exchange. Prices, which have slumped 57 percent since reaching a record $147.27 on July 11, are down 32 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.

Declining Demand

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.

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 United Arab Emirates has notified customers that they will receive less crude as a result of OPEC's Oct. 24 resolution to cut production by 1.5 million barrels a day, Oil Minister Mohamed al-Hamli told reporters in Abu Dhabi yesterday.

Iran-Total

Iran will reduce crude-oil sales to Total SA, Europe's third-largest oil company, by about 70,000 barrels per day, Iranian oil minister, Gholamhossein Nozari, said on Nov. 2. Nigeria's national oil company announced shipment cuts of 5 percent in November and December last week.

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 that 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 declined $4.84, or 7.4 percent yesterday, to settle at $60.48 a barrel on London's ICE Futures Europe exchange.

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