Oil Falls on Signs of Stalling OPEC Cuts, U.S. Demand Concerns

By Grant Smith

Feb. 6 (Bloomberg) -- Oil fell to the lowest in more than two weeks on signs that OPEC’s implementation of its latest supply cuts has stalled as a deepening economic slump in the U.S. threatens demand.

The Organization of Petroleum Exporting Countries will keep oil shipments steady at a five-year low in the next four weeks, data from tanker-tracker Oil Movements showed. Unemployment in the U.S. climbed in January to the highest level since 1992 and payrolls dropped more than forecast as the recession showed no sign of abating.

“The rise in crude oil stocks is already raising doubts about OPEC’s quota discipline,” said Eugen Weinberg, a Commerzbank AG analyst in Frankfurt.

Crude oil for March delivery fell as much as $1.86, or 4.5 percent, to $39.65 a barrel on the New York Mercantile Exchange. That’s the lowest since the expiry of the previous month’s contract on Jan. 20. It was at $39.65 a barrel at 1:33 p.m. in London. Prices have declined 9.9 percent this year and tumbled 54 percent from a year earlier.

Brent crude for March settlement was at $45.54 a barrel, down 92 cents, on London’s ICE Futures Europe exchange at 1:34 p.m. London time. The contract is trading at a $5.95 premium over futures in New York because of growing U.S. stockpiles.

The U.S. jobless rate rose to 7.6 percent, the Labor Department said in a report today. Initial applications for unemployment benefits climbed to a 26-year high, the department said yesterday.

Supply Side

“We read every week OPEC commitment is there, but we don’t see it in the data,” said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich in Vienna. “To really go above $50 the market has to start focusing on the supply side, and for now it’s ignoring it.”

OPEC is still monitoring the result of its series of production cuts to decide whether more reductions are needed at a March 15 ministerial meeting, group president Joao Maria Botelho de Vasconcelos said in an interview yesterday in Luanda.

OPEC, producer of more than 40 percent of the world’s oil, will load 23.41 million barrels a day onto tankers in the four weeks to Feb. 21, unchanged from the quantity shipped in the four weeks to Jan. 24, Oil Movement said in a report yesterday.

On Dec. 17 the group agreed on output constraints that would mean reducing supplies in January by 2.2 million barrels a day from December levels. Still, the members of OPEC with production quotas managed to cut 1.05 million barrels a day of output, according to a Bloomberg News survey of producers, oil companies and industry analysts.

Falling Volatility

Oil prices have remained near the $40 level for the past five trading sessions. The 30-day historical volatility for crude oil fell to 92.28 percent today, the lowest since Dec. 19, according to data compiled by Bloomberg.

Crude oil may trade between $39 and $43 a barrel in New York next week as U.S. stockpiles increase and OPEC members reduce production to bolster prices.

Thirteen of 31 analysts surveyed by Bloomberg News, or 42 percent, said futures will be little changed through Feb. 13. Nine respondents, or 29 percent, forecast oil will decline and nine said there will be an increase. Last week, 38 percent of analysts expected prices to increase.

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