Oil Falls on U.S. Fuel Demand Concern; OPEC Shipments Steady

By Christian Schmollinger and Samantha Zee

Feb. 6 (Bloomberg) -- Crude oil fell on concern that fuel demand in the U.S., the world’s biggest energy consumer, may decline as a report showed the number of newly unemployed climbed to a 26-year high.

Initial applications for unemployment benefits increased more than forecast to 626,000 last week, the U.S. Labor Department said yesterday. A release today may show the jobless rate rose to 7.5 percent in January. OPEC will keep oil shipments steady at a five-year low over the next four weeks, demonstrating that its first-round of supply cuts has stalled.

“Those unemployment figures measure the impact on the real economy and therefore demand,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “The Saudis have taken a strong lead with the output cuts but as always there is a timing issue.”

Crude oil for March delivery fell as much as 57 cents, or 1.4 percent, to $40.60 a barrel on the New York Mercantile Exchange. It was trading at $40.78 a barrel at 10:01 a.m. in Singapore.

Yesterday, futures rose 85 cents, or 2.1 percent, to $41.17 a barrel in New York, the highest settlement since Jan. 30. Prices have declined 8.6 percent this year and tumbled 53 percent from a year ago.

Oil is poised for a 2 percent drop this week, the smallest weekly change in more than five months. Prices declined 10 percent last week.

“I am a lot more bearish than bullish at this point with the global economy only going to get worse and pulling the price of oil down with it,” said Mike Sander, investment adviser at Sander Capital Advisors Inc. in Seattle.

OPEC Cuts

The Organization of Petroleum Exporting Countries, 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.

OPEC has yet to start implementing its most recently announced production cuts, due to take effect on Jan. 1, according to the consultant. On Dec. 17 the group agreed 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.

Volatility Drops

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

“We have been remarkably steady in the low $40s level,” said Purvin & Gertz’s Shum. “And one could say this downward momentum in oil prices might be temporarily stopped by the production cuts made by OPEC. So to that extent the OPEC compliance is holding up well and successful in stabilizing prices.”

Brent crude oil for March settlement was at $46.31 a barrel, down 15 cents, on London’s ICE Futures Europe exchange at 9:39 a.m. Singapore time. The contract yesterday rose $2.31, or 5.2 percent, to $46.46 a barrel.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.