Oil Falls as Equity Drop Sparks Concern Over Economic Recovery

By Grant Smith

June 17 (Bloomberg) -- Crude oil fell for a fourth day, its longest losing streak since February, as prices tracked declines in global equities on speculation that an economic recovery has yet to take hold.

Oil fell as the dollar pared losses, dimming the usefulness of commodities as an inflation hedge. Royal Dutch Shell Plc said Nigerian shipments will be disrupted for a fifth month in July as violence escalates in Africa’s largest oil producer. U.S. crude stockpiles dropped 2 million barrels last week, according to a survey before the Energy Department weekly report today.

“The market is being driven by the dollar yet again, and we’re seeing a pullback in equities today that is reducing some of the risk appetite behind the recent rally,” said Andrey Kryuchenkov, analyst at VTGB Capital in London. “Prices are likely to hold until we get the inventory data.”

Crude oil for July delivery traded for $70.14 a barrel, 33 cents lower, on the New York Mercantile Exchange at 10:40 a.m. London time, after falling as low as $69.91. The contract rose to a seven-month high of $73.23 on June 11.

Shell suspended export obligations on crude exports from the Forcados terminal in Nigeria to cover the remaining loading program for June and July, company spokesman Precious Okolobo said by phone from Lagos today. Militant attacks have cut Nigeria’s oil exports by more than 20 percent since 2006.

Yesterday the industry-funded American Petroleum Institute said U.S. crude inventories fell 1.26 million barrels to 356.6 million barrels last week.

Growing Gasoline Stockpiles

Oil-supply totals from the API and DOE moved in the same direction 76 percent of the time over the past four years, according to data compiled by Bloomberg.

The U.S. Energy Department is scheduled to release its weekly report at 10:30 a.m. today in Washington.

Gasoline supplies probably rose 550,000 barrels in the week ended June 12 from 201.6 million the previous week. Nine of 11 analysts surveyed said supplies climbed. Stockpiles during the same week last year fell 1.2 million barrels amid the peak motor-fuel demand season in the U.S.

“Investors may be sensing that many markets have done enough on the upside in recent months,” said Edward Meir, an analyst with MF Global Ltd. in Connecticut. “Of course, hanging over the markets is the unsettled Iranian situation.”

A disputed result in last week’s presidential elections has prompted the largest anti-government demonstrations since the 1979 revolution in Iran, second-largest producer in the Organization of Petroleum Exporting Countries, to recover from the recession.

The Dow Jones Stoxx 600 Index of European shares slid 1.1 percent at 10 a.m. in London after a three-month, 36 percent rally that drove price-earnings valuations to the highest levels in five years.

The dollar was 0.2 percent weaker against the euro at $1.3873 as of 11:01 a.m. London time, recovering from an earlier low of $1.3928. Declines in the U.S. currency make dollar-priced commodities such as crude more useful as a hedge against inflation.

Brent crude for August settlement was at $70.15 a barrel, 9 cents lower, on London’s ICE Futures Europe exchange at 11:05 a.m. London time.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net