Oil Falls on U.S. Supply Gain, Signs That Recession to Deepen

By Mark Shenk

Jan. 29 (Bloomberg) -- Crude oil fell after U.S. crude stockpiles increased more than forecast and government reports signaled that the U.S. recession will deepen, curbing demand.

Inventories climbed 1.9 percent to 338.8 million barrels last week, the highest since August 2007, an Energy Department report showed yesterday. Orders for U.S. durable goods fell in December for a fifth consecutive month and the number of Americans receiving unemployment benefits soared to a record, figures from the Labor and Commerce Departments showed.

“The negative numbers in yesterday’s inventory report are leading prices lower,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “We had more bad jobless numbers today and orders for durable goods were down 2.6 percent, which put more weight on the economy and the oil market.”

Crude oil for March delivery fell $1.79, or 4.3 percent, to $40.37 a barrel at 9:11 a.m. on the New York Mercantile Exchange. Prices are down 9.5 percent this year and are 56 percent lower than a year ago.

Federal Reserve officials warned of a prolonged global economic slowdown that may push the U.S. to the brink of deflation. U.S. gross domestic product will contract 1.6 percent, Japan’s will shrink 2.6 percent and the euro area will decline 2 percent in 2009, the International Monetary Fund said yesterday.

The Organization of Petroleum Exporting Countries won’t hesitate to cut output further if prices keep falling, the group’s secretary general, Abdalla el-Badri, said at the World Economic Forum today in Davos, Switzerland. Current prices below $50 a barrel are “too low” because they don’t allow producers to invest in expanding capacity, he said.

Cushing Stockpiles

Crude oil supplies at Cushing, Oklahoma, where oil that’s traded on Nymex is stored, climbed 0.9 percent to 33.5 million barrels last week, the highest since at least April 2004, when the department began keeping records, yesterday’s report showed.

Refineries operated at 82.5 percent of capacity last week, down from 83.3 percent. Output fell as companies announced shutdowns for maintenance to switch their production from heating oil to gasoline ahead of the peak motor fuel demand period starting May.

ConocoPhillips, the second-largest U.S. refiner, expects refinery operating rates near 80 percent during the first quarter due to planned turnarounds and hydro-skimming economics.

Brent crude oil for March settlement declined 58 cents, or 1.3 percent, to $44.32 a barrel on London’s ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.