Oil Is Set for a Third Weekly Loss on Rising U.S. Unemployment

By Christian Schmollinger and Ben Sharples

July 3 (Bloomberg) -- Crude oil was poised to decline for a third week on concern a rise in unemployment in the U.S. to the highest in almost 26 years will reduce fuel demand in the world’s largest energy user.

Oil fell more than $2 a barrel yesterday after the Labor Department said employers cut 467,000 jobs in June. Crude also declined as equities dropped and the dollar climbed against the euro, limiting futures purchases as an alternative investment.

“People are worried about the employment number because it shows the expectation of a demand recovery has faded,” said Tetsu Emori, a commodity fund manager with Astmax Ltd. in Tokyo. “The rising dollar has been adding to the bearish sentiment in the market.”

Crude oil for August delivery dropped as much as 63 cents, or 0.9 percent, to $66.10 a barrel on the New York Mercantile Exchange, and was at $66.64 at 1:52 p.m. in Singapore. Oil fell 3.7 percent to $66.73 yesterday. Futures are down 3.9 percent this week.

June’s employment decline was more than forecast and followed a 322,000 decrease in May. Payrolls were estimated to fall 365,000 after a 345,000 drop initially reported for May, based on the median of 79 economists surveyed by Bloomberg News.

The jobless rate jumped to 9.5 percent, the highest since 1983, from 9.4 percent. U.S. fuel supplies increased last week by more than forecast.

“The negative jobs report was not taken well by the equities or oil market,” said Mike Sander, an investment adviser with Sander Capital in Seattle. “Helping to push oil lower was a fall in the Dow Jones by over 200 points and a drop in the euro.”

Stocks Drop

The MSCI Asia Pacific Index lost 0.9 percent to 102.09 as of 1:31 p.m. in Tokyo. The gauge has slipped 1.5 percent this week, the second time in three weeks it has retreated. The Standard & Poor’s 500 Index tumbled 2.9 percent to 896.42, extending its slump since June 12 to 5.3 percent and erasing its 2009 gain.

Declining crude oil and gasoline prices helped send the Reuters/Jefferies CRB Index of 19 raw materials lower. The index dropped 1.8 percent to 246.60.

A rising dollar makes raw materials such as oil and gold less attractive to investors. The dollar climbed to $1.3952 per euro as of 8:25 a.m. in Tokyo from $1.4003 in New York yesterday, after earlier rising to $1.3929, the highest level since June 25.

There will be no floor trading in New York today because of the Independence Day holiday. All electronic trading will be counted as part of the session on July 6.

Oil Supply

Kuwaiti Oil Minister Sheikh Ahmed al-Sabah said oil prices above $100 a barrel would weaken the global economy. There is an oversupply of oil in the market and if the situation continues, OPEC will “definitely” not increase output in the group’s next meeting on Sept. 9, he told reporters in Kuwait City yesterday.

“Hopefully in the third and fourth quarter it won’t surpass the $100 mark because this will fuel recession again,” Sheikh Ahmed said.

The Organization of Petroleum Exporting Countries, in a meeting May 28 in Vienna, decided against cutting production targets because of concern higher prices might harm an ailing global economy. The group increased output for a third month in June, a Bloomberg News survey showed. Members pumped an average 28.23 million barrels a day last month, up 55,000 from May.

Brent crude oil for August settlement fell as much as 79 cents, or 1.2 percent, to $65.86 a barrel on London’s ICE Futures Europe exchange. It was at $66.51 a barrel at 1:49 p.m. Singapore time. Yesterday, the contract declined 3.1 percent to settle at $66.65 a barrel.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net.