Oil Falls for Second Day on Doubts Over Pace of Demand Recovery

By Yee Kai Pin and Gavin Evans

Sept. 14 (Bloomberg) -- Crude oil fell for a second day as higher U.S. fuel stockpiles raised concern that gains in prices may have outpaced the recovery in the global economy.

Oil slipped to its lowest in almost a week before a report tomorrow in the U.S., the world’s largest energy consumer, which may show retail spending barely changed in August if gasoline and autos were excluded. The country’s stockpiles of distillate have climbed to their highest since 1983, according to data from the Energy Department last week.

“The market seemed to be telling traders that they had arrived at the end of the party, and that existing prices had long ago discounted everything bullish,” said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut. “The market decided that the resistance overhead was just too strong to break.”

Crude oil for October delivery fell as much as $1.27, or 1.8 percent, to $68.02 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The contract traded at $68.13 at 2:36 p.m. in Singapore.

Futures tumbled 3.7 percent to $69.29 a barrel on Sept. 11, dropping the most in two weeks and snapping a four-day climb. Asian shares declined today, mirroring a retreat on Wall Street that reflected concern over earnings prospects.

“We’re still waiting to see if the fundamentals can catch up with the sentiment in the oil market,” said Toby Hassall, a research analyst at CWA Global Markets in Sydney. “There definitely seems to be a bit of significant resistance being encountered once we get into the $70s.”

Lower Demand

Oil has gained 53 percent this year as rising equities and a weaker dollar bolstered investment in commodities. The greenback was little changed after trading last week at its lowest since December.

Prices are pre-empting the recovery in global demand, according to Hassall. The U.S. is entering a so-called “shoulder period” in demand with the end of the summer last week and before the start of the Northern Hemisphere winter, when heating fuel consumption increases.

U.S. stockpiles of distillate, including heating oil and diesel, rose a third week last week to 165.6 million barrels, 27 percent more than a year earlier, the Energy Department said on Sept. 10.

“If we do have a mild winter and we don’t see much of a drawdown in distillate stocks, that may limit the upside,” Hassall said.

The country’s gasoline stockpiles rose last week to 207.2 million barrels, the first increase in seven weeks, according to the Energy Department.

“The ‘driving season’ is over and supplies are greater today than in May,” Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania, said in a note to clients.

Long Positions

Hedge fund managers and other large speculators increased their net-long position in New York crude oil futures in the week to Sept. 8, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 33,112 contracts on the New York Mercantile Exchange, the Washington-based commission said Sept. 11 in its Commitments of Traders report. Net-long positions rose by 4,518 contracts, or 16 percent, from a week earlier.

“Crude oil is just following weak fundamentals,” said Ken Hasegawa, a commodity derivative sales manager at broker Newedge in Tokyo. “If the price goes down below $68, then it’s possible to go down to $66.”

Brent crude oil for October settlement fell as much as 98 cents, or 1.5 percent, to $66.71 a barrel on the London-based ICE Futures Europe exchange. The contract traded at $66.75 at 2:35 p.m. Singapore time. It dropped 3.1 percent to $67.69 on Sept. 11, the biggest decline since Aug. 31.

To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net; Gavin Evans in Wellington at gavinevans@bloomberg.net.