Oil Drops as Equities Decline on Concern Over Deeper Recession

By Yee Kai Pin and Nidaa Bakhsh

June 23 (Bloomberg) -- Crude oil fell for a third day in New York as equity markets declined amid concerns the recovery in the global economy will be slower than expected.

Oil traded below $67 a barrel as the Standard & Poor’s 500 Index slid 3.1 percent in New York, the most in two months, fueling concerns over the outlook for global oil demand. The dollar gained against the euro for a second day, limiting the appeal of commodities as a hedge against inflation.

“What’s behind the movement is a change in sentiment,” Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said by phone. “Before, we were expecting a real demand recovery. Now we’re pricing in a slowdown of the slowdown.”

Crude oil for August delivery declined as much as $1.13, or 1.7 percent, to $66.37 a barrel on the New York Mercantile Exchange. It traded at $66.88 at 10:02 a.m. in London. The July contract expired yesterday at $66.93.

Oil is down more than $6 from its year-to-date high of $73.23, approaching the 10 percent drop that would mark a so- called correct in the market.

U.S. and European stocks fell yesterday after the World Bank projected the world economy will contract 2.9 percent this year, more than an earlier projection of 1.7 percent.

“Exuberance in the crude oil market is waning,” Stephen Schork, president of the Schork Group in Villanova, Pennsylvania, said today in a note to clients. “Telltales appear that a correction in crude oil is imminent. As far as today goes, we have changed our daily technical bias to bearish.”

Falling Demand

Total U.S. daily fuel demand in the four weeks ended June 12 was down 6 percent from a year earlier, the Energy Department said last week. Gasoline inventories rose 3.39 million barrels to 205 million in the week ended June 12, the biggest increase since January, the department said.

Gasoline supplies rose 1 million barrels last week, according to the median of 10 estimates by analysts surveyed by Bloomberg News. The Energy Department is scheduled to release its weekly report tomorrow at 10:30 a.m. in Washington.

Brent crude oil for August settlement dropped as much as $1.08, or 1.6 percent, to $65.90 a barrel on London’s ICE Futures Europe exchange. It traded at $66.38 at 9:29 a.m. London time.

“Short term, the trend has to be down,” said Ken Hasegawa, a commodity derivative sales manager at Newege in Tokyo. “Given the rally since March, it is time for a healthy correction. Within a month, oil could drop to $60.”

Iran Impact

Oil analysts also cited the absence of an immediate impact from continuing civil unrest in Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, as a factor that may further weigh on prices.

Iran’s Revolutionary Guards vowed to “put an end to the chaos” of street protests against the re-election of President Mahmoud Ahmadinejad. State-run Press TV yesterday cited the country’s OPEC governor, Mohammad Ali Khatibi, as telling the Iran Daily newspaper there’s been no impact on crude exports.

“The bullish trend in crude oil has failed to perpetuate despite the introduction of bullish headlines from Iran,” said Schork. “Crude oil’s rapid rise has stalled. A market that cannot move higher on news like that appears ripe for a further selloff.”

To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.netNidaa Bakhsh in London at nbakhsh@bloomberg.net