Oil Falls a Fifth Day as U.S. Fuel Demand Declines Further

By Christian Schmollinger

Dec. 4 (Bloomberg) -- Crude oil fell for a fifth day to the lowest in almost four years after a report showed U.S. fuel demand extended declines because of the country's longest economic contraction since World War II.

The average amount of fuel products such as gasoline and diesel supplied by refiners for the past four weeks was 7.9 percent less than a year earlier, according to a U.S. Energy Department report yesterday. Refinery operating rates in the world's largest energy-consuming nation declined as falling demand lowered processing profits.

``The most important data is the petroleum products supplied, which is the demand figures, and the trend there remains weak,'' said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney. ``Really, the story hasn't changed much as there are broad worries about consumption.''

Crude oil for January delivery today dropped as much as $1.49, or 3.2 percent, to $45.30 a barrel on the New York Mercantile Exchange. That's the lowest since Feb. 9, 2005. It was at $45.58 a barrel at 3:58 p.m. Singapore time.

Futures have tumbled 69 percent after reaching a record $147.27 on July 11. Yesterday, crude fell 17 cents, or 0.4 percent, to $46.79, the lowest settlement since Feb. 9, 2005.

The four-week average of petroleum products supplied in the U.S. was 19.3 million barrels a day, down from 20.9 million barrels a day a year ago, the Energy Department report showed. The U.S. first entered a recession in December 2007, the National Bureau of Economic Research, a private, non-profit panel of economists that dates American business cycles, said on Dec. 1.

U.S. Inventories

Crude-oil supplies fell 456,000 barrels to 320.4 million barrels last week, the first decline in 10 weeks, the department said. Inventories were forecast to rise 1 million barrels, according to the median of 13 responses in a Bloomberg survey.

Supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, climbed 2.35 million barrels to 22.9 million last week. The increase left inventories at their highest since June 2007.

Refineries operated at 84.3 percent of capacity, down 1.8 percentage points from the week before. It was the biggest one- week drop since September, when hurricanes Gustav and Ike struck the Gulf Coast.

The price difference between gasoline futures and oil contracts, known as the crack spread and seen as a profit margin for refiners, was at minus $3.07 a barrel. The crack has been negative for almost two months, reducing the incentive to process fuels.

Widening Recession

Gasoline stockpiles dropped 1.53 million barrels to 198.9 million in the week ended Nov. 28. Supplies of distillate fuel, a category that includes heating oil and diesel, fell 1.72 million barrels to 125 million last week.

Brent crude oil for January settlement fell as much as $1.64, or 3.6 percent, to $43.80 a barrel on London's ICE Futures Europe exchange, and traded at $44.05 at 3:59 p.m. Singapore time.

Oil prices have dropped as the U.S., Japan and Europe are all in recession for the first time since World War II.

Businesses in Japan, the world's second-largest economy, reduced investment at the fastest pace in six years as the global economic contraction darkened the outlook for exports.

General Motors Corp. and Chrysler LLC are seeking a multibillion-dollar bailout from the U.S. government as the auto- industry slump deepens. To get the money, the companies agreed to slash payrolls, shed brands and shrink dealerships.

U.S. Services

Service industries in the U.S. contracted the most in at least 11 years, the Institute of Supply Management's index of non-manufacturing business showed. Companies eliminated 250,000 jobs in October, the most since November 2001, ADP Employer Services said yesterday.

The Labor Department's November jobs report may show payrolls fell by 330,000, the biggest decrease since 1982, according to a Bloomberg News survey of economists.

``I do think this non-farm payrolls data will be quite important to the market,'' said Commonwealth Bank's Moore. ``I'm sure some of it's factored into the market but the actual printing of the number might still cause people to worry about oil consumption in the U.S.''

The report will be released at 9:30 a.m. local time in Washington D.C.

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