Crude Oil Drops From Six-Week High on Concern Economic Recovery to Falter

By Ben Sharples - Sep 14, 2011 11:44 AM GMT+0700

Oil fell from a six-week high as investors speculated that gains this week were exaggerated amid concern that Europe’s debt crisis and the faltering U.S. economic recovery will temper fuel demand.

Futures slipped as much as 1.6 percent after technical indicators signaled the biggest gain in almost a week yesterday may have been excessive. Treasury Secretary Timothy F. Geithner will meet European finance ministers this week to discuss efforts contain the region’s sovereign-debt troubles. The International Energy Agency yesterday cut global oil-consumption forecasts for this year and 2012.

“There is overall reduced demand as a consequence of weaker than expected economic growth in the developed economies,” Ric Spooner, a chief market analyst at CMC Markets in Sydney, said by telephone today. “Growth in the big Western economies is weaker than it was a few months ago and getting weaker all the time.”

Crude for October delivery dropped as much as $1.48 to $88.73 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.90 at 2:42 p.m. Sydney time. The contract yesterday advanced $2.02 to $90.21, the highest close since Aug. 3. Prices are 16 percent higher the past year.

Brent oil for October settlement fell 62 cents, or 0.6 percent, to $111.27 a barrel on the London-based ICE Futures Europe Exchange. The European benchmark contract’s premium to U.S. futures was at $22.37, compared with a record close of $26.87 on Sept. 6.

Technical Indicators

New York oil’s five-day stochastic oscillators rose above 70, signaling prices increased too quickly this week, according to data compiled by Bloomberg. Futures also stopped advancing before the 50-day moving average, which was at $90.72 a barrel today. A failure to breach technical resistance typically means prices will change direction.

Geithner will meet European Union finance ministers in Wroclaw, Poland, on Sept. 16 and 17. It will be the first time he has attended a session of Europe’s Economic and Financial Affairs Council, known as Ecofin.

The Paris-based IEA lowered its estimate for oil consumption this year by 200,000 barrels a day and by 400,000 in 2012. Worldwide demand will rise 1.2 percent to 89.3 million barrels a day this year and 1.6 percent to 90.7 million next year. The full resumption of Libyan exports following the ouster of Muammar Qaddafi will be “long and difficult,” it said.

U.S. Economy

“The market will focus on developments in the Eurozone, ongoing weakness in economic data, and the restart of production in Libya,” Tom Pawlicki, a Chicago-based analyst at MF Global Holdings Ltd., said in a note today.

U.S. retail sales probably climbed 0.2 percent in August, the slowest pace in three months, as job and income growth weakened, according to the median estimate in a Bloomberg News survey of 73 economists before a report today. Sales increased 0.5 percent in July.

Gasoline inventories rose 2.76 million barrels last week, the American Petroleum Institute said yesterday. That compares with a forecast decline of 500,000 barrels in an Energy Department report today, according to the median of 14 analyst estimates in a Bloomberg News survey.

Crude supplies fell 5.05 million barrels, the API said. The Energy Department report may say they dropped 3 million barrels after Tropical Storm Lee shut output in the Gulf of Mexico, according to the Bloomberg News survey.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey. API crude stockpiles are 4.2 percent higher than the five-year average. Gasoline stockpiles are 1.9 percent higher.

Maria, the 14th named storm of the Atlantic hurricane season, gained speed on a path that may take it toward refineries in Canada.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net