Oil Falls a Second Day as Swine Flu Outbreak May Curtail Travel

By Christian Schmollinger

April 28 (Bloomberg) -- Crude oil fell for a second day on concern that the swine-flu outbreak will curtail travel, delaying a recovery from the global recession.

Oil declined as the World Health Organization raised its global pandemic alert to the highest since the warning system was adopted in 2005, saying the disease is not containable. U.S. crude supplies probably rose last week by 1.8 million barrels from their highest level since September 1990, according to a Bloomberg survey of analysts.

“From the oil market point of view, it’s the impact on travel and economic activity from swine flu that could affect prices,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “The market has been clanging around the high $40’s to the low $50’s for a while now and can’t get past the top side because the inventories are so high.”

Crude oil for June delivery fell as much as 42 cents, or 0.8 percent, to $49.72 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $49.89 a barrel at 10:08 a.m. Singapore time. Prices are up 12 percent this year. Futures declined $1.41 to $50.14 yesterday.

Other commodities dropped on concern that the swine flu outbreak will exacerbate the economic slowdown. Copper for delivery in three months on the London Metal Exchange fell as much as $35, or 0.8 percent, to $4,310 a metric ton today. Lean hog futures dropped as much as 37.5 cents to $65.63 a pound.

U.S Equities

Asian stocks fell today with the MSCI Asia-Pacific Index dropping 0.5 percent to 88.76 at 9:17 a.m. Tokyo time. U.S. stocks also retreated on concern the swine-flu outbreak will curb travel. The Standard & Poor’s 500 Index declined 1 percent to 857.51. The Dow Jones Industrial Average dropped 0.6 percent to 8,025.

Airline stocks tumbled worldwide. U.S. carriers reported some cases of suspected flu-like symptoms to health authorities, the Air Transport Association trade group said. The U.S. Centers for Disease Control and Prevention recommended that nonessential travel to Mexico be avoided.

Airline travel in Asia fell after the outbreak of Severe Acute Respiratory Syndrome in 2003.

“It’s early days on this issue,” said Commonwealth Bank’s Moore. “The Asian Development Bank said Sars had a negative impact on Asia’s GDP of 0.6 percent and it’s the potential for that kind of effect that caused markets to fall yesterday.”

Dollar Falls

The dollar increased against the euro for the first time in a week on speculation the European Central Bank will lower interest rates at its meeting next month. The U.S. currency traded at $1.3025 to the euro today after moving 1.6 percent higher yesterday, limiting the appeal of dollar-priced commodities like crude oil as an alternative investment.

The global economy will shrink 1.3 percent this year compared with a January prediction of 0.5 percent growth, according to an International Monetary Fund forecast on April 22. The Washington-based lender predicted expansion of 1.9 percent next year instead of its earlier 3 percent estimate.

Brent crude for June settlement fell as much as 26 cents, or 0.5 percent, to $50.06 a barrel on London’s ICE Futures Europe exchange at 10:08 a.m. Singapore time. It fell $1.35, or 2.6 percent, to end yesterday’s session at $50.32 a barrel.

To contact the reporter on this story: Christian Schmollinger in Tokyo at christian.s@bloomberg.net