Crude Oil Trades Below $79 as Demand Gains Lag Behind Price

By Ann Koh

Oct. 27 (Bloomberg) -- Crude oil traded below $79 a barrel after falling the most in a month as prices rose at a faster pace than a recovery in demand.

Oil earlier also declined after OPEC’s president said the group may boost production targets at its meeting in December as prices climbed above $75. Crude oil surged to a one-year high of $82 a barrel last week.

“The rally will not sustain,” said Clarence Chu, a trader with options dealers Hudson Capital Energy in Singapore. “Eventually oil should go back down towards $70. Demand hasn’t really come back.”

Crude oil for December delivery was at $78.79 a barrel, up 11 cents, at 3:18 p.m. Singapore time. Yesterday, it dropped $1.82, or 2.3 percent, to close at $78.68 a barrel on the New York Mercantile Exchange, the biggest decline since Sept. 24 and the lowest settlement since Oct. 16. Prices have gained 76 percent this year and reached $82 a barrel on Oct. 21.

The dollar dropped to $1.4904 per euro as of 6:25 a.m. in London from $1.4876 yesterday in New York. The greenback reached $1.5063 yesterday, the weakest level since August 2008.

“The range for crude has changed to $75-$85, moved up, and the upper limit is at $82 at the moment,” said Ken Hasegawa, a commodity derivatives sales manager at brokers Newedge in Tokyo. “Unless there is a collapse in the economy, this market would be supported at around $75 a barrel.”

U.S. Stockpiles

An Energy Department report due tomorrow will show that U.S. inventories of crude oil rose 1.5 million barrels last week, according to the median of nine estimates by analysts in a Bloomberg News survey. Supplies in the week ended Oct. 16 climbed 1.3 million barrels to 339.1 million, leaving stockpiles 9.4 percent above the five-year average for the period.

Analysts forecast that inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, declined last week.

Crack spreads, or the profit from refining crude into heating oil and gasoline, probably rose as refiners on the country’s East Coast shut for maintenance, reducing crude demand and the supply of oil products, Chu said.

The Organization of Petroleum Exporting Countries, which accounts for 40 percent of global oil output, will meet Dec. 22 in Luanda, Angola, to review production quotas.

Some member countries are able to pump more oil if the market requires it, OPEC President and Angolan Oil Minister Jose Maria Botelho de Vasconcelos said in an interview on Oct. 25.

“The price of oil was pushed back below the $80 mark by the thought of OPEC increasing production at their next meeting in December and increased concerns over banking sector liquidity,” said Mike Sander, an investment adviser with Sander Capital in Seattle.

Brent crude oil for December settlement was at $77.37 a barrel, up 11 cents, on the London-based ICE Futures Europe exchange at 3:14 p.m. Singapore time. Yesterday it declined $1.66, or 2.1 percent, to end the session at $77.26 a barrel.

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net