Oil Falls as Equities Drop on Concern Recession Is Deepening

By Grant Smith

Feb. 20 (Bloomberg) -- Crude oil fell, paring its largest gain in seven weeks, as stock markets in Europe and Asia dropped on concern the recession is deepening.

Oil declined as Europe’s Dow Jones Stoxx 600 Index fell to a five-year low. Miner Anglo American Plc suspended its dividend and announced 19,000 job cuts, saying it expected continuing weakness in commodity prices. Crude jumped yesterday after a report showed U.S. stockpiles unexpectedly fell last week.

“Equities are in bad shape today and so commodities are suffering,” said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich AG in Vienna. “The economy has to recover before we see any substantial increase in oil prices.”

Crude oil for March delivery fell as much as $2.02, or 5.1 percent, to $37.46 a barrel in electronic trading on the New York Mercantile Exchange at 1:09 p.m. London time. Yesterday, the contract gained $4.86 to settle at $39.48 a barrel.

The March contract expires today. The more active April contract was at $38.31 a barrel, down $1.87.

Barclays Capital said it was cutting its forecast for average 2009 Brent crude oil prices to $60 a barrel from $71 a barrel because of the weakening global economic outlook. The bank expects global oil demand to drop 1.25 million barrels a day this year.

“The start of sustainable price recovery may have to wait for a clearer bottoming of the economic cycle,” Barclays analysts led by Paul Horsnell said it a report yesterday.

Sustained Rally

Futures need to close above their five-day moving averages to make a sustained rally, broker PVM Oil Associated Ltd. said. The April contract on the New York Mercantile Exchange will have to settle above its five-day average of around $39.48 a barrel, according to PVM.

Brent crude oil for April settlement fell as much as $1.82, or 4.3 percent, to $40.17 a barrel on London’s ICE Futures Europe exchange. It was at $40.21 a barrel at 1:10 p.m. in London.

A U.S. Energy Department report showed inventories dropped 138,000 barrels to 350.6 million barrels last week, the first decline this year. Analysts had forecast an increase in U.S. crude inventories of 3.2 million barrels, according to a Bloomberg News survey.

“The market has been used to seeing bigger-than-expected builds in U.S. supplies each week and to get an actual negative number gave the market a fresh dose of optimism,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “Still, I can’t see anything that’s shown the demand in the market has started to pick up. I think it’s just a matter of limiting supply.”

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net;