Oil Falls Before Jobs Data as Equities Reinforce Demand Concern

By Grant Smith

Aug. 7 (Bloomberg) -- Crude oil fell for a second day as falling equity markets reinforced concerns that a pickup in economic activity and demand for fuels will be slow in coming.

Oil declined before a U.S. Labor Department report forecast to show the unemployment rate climbed to a 26-year high. Crude oil inventories in the U.S. rose 1.67 million barrels to 349.5 million last week, 10 percent above the five-year average, an Energy Department report showed Aug. 5.

“We’ve hit a little bit of a ceiling,” said Tobias Merath, head of commodities research at Credit Suisse Group AG in Zurich. “The speed of the price surge has done some damage to the physical market. The likely path is consolidation in a broad band, with a drop to the mid-$60s before rebounding.”

Crude oil for September delivery on the New York Mercantile Exchange fell as much as $1.03, or 1.4 percent, to $70.91 a barrel in electronic trading. It was at $71.23 a barrel at 11:29 a.m. in London.

Oil has advanced 2.7 percent this week as U.S. equities increased and the dollar weakened, and is heading for its fourth weekly increase. Futures have gained 61 percent this year.

European and Asian stocks fell as results from Royal Bank of Scotland Group Plc and Konica Minolta Holdings Inc. spurred speculation that a five-month rally has outpaced the prospects for earnings.

U.S. employers probably cut 325,000 workers from payrolls in July after trimming 467,000 the prior month, according to the median of 82 estimates in a Bloomberg News survey. The unemployment rate is likely to have risen to 9.6 percent from 9.5 percent. The report is due at 8:30 a.m. in Washington.

‘Bullish Channel’

“Either the bulls are running out of steam in the Nymex crude oil pit or they are consolidating for a run back at $75,” Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania, said in a note to clients. The market is “entrenched in a well-defined bullish channel, rising supplies of the physical notwithstanding,” he said.

Brent crude oil for September settlement fell as much as 95 cents, or 1.3 percent, to $73.88 a barrel on London’s ICE Futures Europe exchange. It was at $74.31 at 11:28 a.m. in London, $3.08 higher than its New York equivalent.

U.S. stockpiles of distillate fuel, which includes heating oil and diesel, are 25 percent above the five-year average and gasoline inventories are 3 percent higher, according to the Energy Department. Fuel demand in the nation averaged 18.9 million barrels a day in the past four weeks, down 3.1 percent from a year earlier.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net