Crude Oil Falls on Concern U.S. Economic Recovery May Stall

By Yee Kai Pin and Ben Sharples

Oct. 1 (Bloomberg) -- Crude oil in New York fell as traders booked profits from yesterday’s rally on concern the pace of fuel demand recovery in the U.S., the biggest energy-consuming nation, may stall.

Oil slipped below $70 a barrel after an unexpected drop in U.S. business activity and as companies cut more jobs than estimated. Prices rallied 5.9 percent yesterday, the most since April 2, after the Energy Department posted a surprise drawdown in gasoline stockpiles.

“Yesterday seemed like a rather disproportionate rise,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “There’s a lot of data out in the next couple of days in the U.S. that would really affect perceptions of the outlook and have a bearing on the movement in oil prices.”

Crude oil for November delivery fell as much as 78 cents, or 1.1 percent, to $69.83 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $70.07 a barrel at 2:56 p.m. in Singapore. Futures have gained 57 percent this year.

The Institute for Supply Management-Chicago Inc.’s business barometer slid to 46.1, trailing the most pessimistic estimate from economists. Companies in the U.S. cut September payrolls by a larger-than-forecast 254,000 jobs, a report from ADP Employer Services showed, indicating the labor market may be slow to recover.

“The poor economic news suggests oil should not go too much higher in price because the U.S. economy is not improving as quickly as hoped,” Mike Sander, an investment adviser at Sander Capital in Seattle, said in an e-mail. “The economy is still in dire shape.”

Gasoline Drawdown

U.S. gasoline inventories fell 1.7 million barrels to 211.5 million in the week to Sept. 25, the Energy Department said yesterday. Stockpiles were forecast to rise 1 million barrels, based on the median of estimates in a Bloomberg News survey of analysts.

Crude oil supplies climbed 2.8 million barrels to 338.4 million, the report showed. Distillate stockpiles, which include heating oil and diesel, rose 323,000 barrels to 171.1 million. That’s a sixth weekly increase even as refinery output and imports dropped.

“While gasoline demand looks fine, distillate demand remains very weak, with an 11.6 percent year-on-year decline for September-to-date,” analysts at Barclays Capital, led by Paul Horsnell, said in an overnight report.

The investment bank maintained its forecast for oil in New York to average $76 a barrel in the fourth quarter. Prices rose 1 percent in the three months to yesterday, a third quarterly increase.

‘Sharp Reaction’

“We had a very sharp reaction given data that had both positive and negative aspects,” said Commonwealth Bank of Australia’s Moore. “We’re essentially still in a range of $65 to $75.”

U.S. stock markets fell following the Chicago business activity report. The Standard & Poor’s 500 Index lost 0.3 percent to 1,057.08 in New York, while the Dow Jones Industrial Average also slipped 0.3 percent to 9,712.28.

Asian shares mirrored the decline on concern the region’s economic recovery may falter. The MSCI Asia Pacific Index lost 1.2 percent to 116.55 at 3:33 p.m. in Tokyo. European stock- index futures were little changed.

China’s manufacturing expanded in September at the fastest pace in 17 months on stimulus spending and this year’s record growth in new loans. The country, Asia’s largest oil consumer, marks 60 years of Communist Party rule today.

Reduced Profits

South Korea, Asia’s third-biggest oil importer, bought less crude oil in September as refiners cut output in response to reduced profits. Imports fell to 67.4 million barrels, 2.5 percent less than the same month last year, according to the Ministry of Knowledge Economy.

Brent crude oil for November settlement fell as much as 73 cents, or 1.1 percent, to $68.34 a barrel on the London-based ICE Futures Europe exchange. The contract traded at $68.58 a barrel at 2:55 p.m. Singapore time. Yesterday, it rose 5.5 percent, the steepest increase since Sept. 16, to settle at $69.07 a barrel.

Yesterday’s rally “had a lot to do with some end-of- quarter window-dressing,” Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania, said in a note to clients. “Today we wipe the slate clean as we begin a new quarter. Let’s see if the bulls can keep the pressure on.”

To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net