Crude Oil Extends Decline From One-Year Low After Worst Quarter Since 2008

By Ben Sharples - Oct 3, 2011 7:43 AM GMT+0700

Oil fell from a one-year low in New York, extending declines after the worst quarter since 2008, as investors speculated that a slowing U.S. economy and Europe’s debt crisis will curb fuel demand.

Futures slipped as much as 1.6 percent, after dropping 17 percent since the end of June. Reports this week may show manufacturing in the U.S., the world’s biggest oil consumer, barely grew last month while job growth failed to cut unemployment. European finance ministers meet today in Luxembourg to weigh the threat of a Greek default. Royal Dutch Shell Plc shut units in Singapore at its largest oil refinery after the worst fire at the plant in 23 years.

“It’s a confidence issue,” Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney, said by telephone today. “Economic data in the U.S. hasn’t been all that terrible but we will focus on the employment figures at the end of the week to see whether or not they are improving. This is the big-ticket item.”

Crude for November delivery fell as much as $1.30 to $77.90 a barrel in electronic trading on the New York Mercantile Exchange and was at $78.48 at 11:41 a.m. Sydney time. The contract fell $2.94 to $79.20 on Sept. 30, the lowest close since Sept. 29, 2010. Last quarter’s decline was the biggest since the three months ended Dec. 31, 2008.

Brent oil for November settlement slid 92 cents, or 0.9 percent, to $101.84 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $23.36 to New York crude, compared with a record of $26.87 on Sept. 6.

U.S. Manufacturing

The Institute for Supply Management’s factory index fell to 50.3 from 50.6 in August, according to a Bloomberg survey of economists before a report today. A reading of 50 is the dividing line between contraction and expansion. Employment climbed by 50,000 workers with the jobless rate holding at 9.1 percent for a third month, according to the median forecast of 67 economists surveyed by Bloomberg News before Labor Department data Oct. 7.

Shell declared force majeure, a legal clause exempting it from fulfilling contracts, as it halted units at its 500,000- barrel-day Pulau Bukom refinery after the fire at the Singapore plant. The company declined to specify how many customers are affected or how long the measure will be in place.

The Organization of Petroleum Exporting Countries’ oil output in September rose to the highest level since November 2008, as a Saudi cut was outpaced by Iraqi and Libyan gains, a Bloomberg News survey showed. Production increased 75,000 barrels to average 30.055 million barrels a day, according to the survey of oil companies, producers and analysts.

Markets Balanced

Global oil demand is balanced with supply, said officials from OPEC’s two largest producers, Saudi Arabia and Iran, as the group evaluates the outlook for economic growth and the return of Libyan output.

Fighting in Libya reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day in August, according to Bloomberg estimates, compared with the 1.6 million barrels a day in January. The nation pumped 100,000 barrels a day last month.

Hedge funds cut bullish bets on oil by the most in seven weeks on concern that economic growth will falter. The funds and other large speculators reduced wagers on rising prices by 7.4 percent in the week ended Sept. 27, according to the Commodity Futures Trading Commission’s Commitments of Traders report released Sept. 30. It was the largest decline since Aug. 9.

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

To contact the editor responsible for this story: Paul Gordon in Hong Kong at pgordon6@bloomberg.net