Oil Is Steady After U.S. Supplies Climb as Recession Deepens

By Mark Shenk and Samantha Zee

Jan. 30 (Bloomberg) -- Crude oil in New York was little changed after U.S. crude stockpiles increased more than forecast and government reports signaled the U.S. recession will deepen, curbing fuel 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 the 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 dropped 4 cents to $41.40 a barrel at 8:26 a.m. Singapore time on the New York Mercantile Exchange.

Yesterday, futures for March delivery fell 72 cents, or 1.7 percent, to settle at $41.44 a barrel in New York. Prices are down 7.1 percent this year and are 55 percent lower than a year earlier.

Bolstering prices in the past day are signs the United Steelworkers union will reject the third contract offer from Royal Dutch Shell Plc covering workers at U.S. refineries with almost two-thirds of the country’s capacity. The current agreement expires Feb. 1.

‘A Real Threat’

Failure to reach a new accord “poses a real threat of strike action,” Gary Beevers, the Steelworkers’ international vice president in charge of the talks, said in a written message to union members. The offer will be “rejected at the appropriate time,” Beevers said.

BP Plc, Europe’s second-largest oil company, said it may shut four U.S. refineries with union workers that can process 1.3 million barrels a day of crude oil if the steelworkers’ union goes on strike. Exxon Mobil Corp. and Shell are preparing to keep their U.S. plants running if there is a work stoppage.

Gasoline futures for February delivery rose 4.74 cents, or 4 percent, to $1.2309 a gallon in New York yesterday, the highest settlement since Nov. 14. Heating oil for February increased 0.68 cent, or 0.5 percent, to settle at $1.4283 a gallon.

Federal Reserve officials warned of a prolonged global economic slowdown that may push the U.S. to the brink of deflation. For the first time during the credit crisis, the Federal Open Market Committee’s statement this week indicated concern that the worldwide economy weakening “significantly,” with “some risk” that inflation would remain below ideal rates.

Shrinking GDP

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 earlier this week.

“The IMF numbers show why, despite relatively good compliance, it’s still a struggle for OPEC,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “It will probably be well into the second half of the year before we get evidence of a recovery.”

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.

OPEC set a production ceiling of 24.845 million barrels a day as of Jan. 1 for its 11 members with quotas, 4.2 million barrels a day lower than its output in September. Iraq is the only member not subject to the group’s quotas.

Oil Demand

U.S. oil demand may fall for several years because of energy efficiency measures, Merrill Lynch said in a report. Oil prices may reach a trough in the first half of this year before rebounding as investment cutbacks create a supply shortage, Merrill analysts led by Francisco Blanch said in the report.

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, according to the report.

The price of oil for delivery next December is 34 percent more than for the current month, increasing the opportunity for traders to profit from storing crude for later use. This structure, in which a future month’s price is higher than the one before it, is known as contango.

Brent crude oil for March settlement rose 50 cents, or 1.1 percent, to end the session at $45.40 a barrel on London’s ICE Futures Europe exchange yesterday.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.