Oil Drops For a Second Day After China’s Economy Grows Slowest Since 2009

By Ben Sharples and Christian Schmollinger - Oct 18, 2011 1:56 PM GMT+0700

Oil fell for a second day in New York after China said its economy grew at the slowest pace in two years and U.S. crude stockpiles were forecast to increase.

Futures dropped as much as 0.5 percent, extending yesterday’s 0.5 percent decline, after China’s statistics bureau said the economy grew at 9.1 percent in the third quarter, less than predicted. An Energy Department report tomorrow may show U.S. crude inventories climbed for a second week, according to a Bloomberg News survey. Technical indicators indicate prices may have advanced too fast to be sustainable.

“The number from China is getting a bit worse than before,” said Ken Hasegawa, an energy trading manager at broker Newedge Group in Tokyo, who forecasts prices will decline $5 a barrel. “If the recovery of the economies in Europe and the U.S. is getting worse, then the economies of China and Asia will show some damage.”

Crude for November delivery fell as much as 40 cents to $85.98 a barrel in electronic trading on the New York Mercantile Exchange. It was at $86.10 at 2:45 p.m. Singapore time. Yesterday, the contract lost 42 cents to $86.38, the lowest settlement since Oct. 13. Prices are down 5.8 percent this year.

Brent oil for December settlement on the London-based ICE Futures Europe exchange dropped as much as 45 cents, or 0.4 percent, to $109.71 a barrel. The European benchmark contract was at a premium of $24 to U.S. futures. The difference narrowed 16 percent yesterday, the most since June 16.

Stochastic Oscillators

Crude is extending losses in New York as the five-day stochastic oscillators have risen above 70, signaling prices may have climbed too quickly to be sustained, according to data compiled by Bloomberg. Investors tend to sell contracts when the market is considered “overbought”.

U.S. crude stockpiles probably rose by 2 million barrels in the week ended Oct. 14, according to the median estimate of nine analysts surveyed by Bloomberg News before a weekly Energy Department report tomorrow. All the respondents forecast an increase from 337.6 million.

Gasoline supplies are expected to have decreased 1 million barrels, the survey showed. Distillate-fuel inventories, a category that includes heating oil and diesel, likely fell 1.5 million barrels.

China’s gross domestic product increased less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists. The country consumes more crude than any nation except the U.S.

Apparent oil demand in China, or the amount of processing volume plus net imports, increased 2.8 percent to 8.949 million barrels a day in September compared with a year ago. That’s down from 7.97 percent year-on-year growth in August, based on Bloomberg data.

Libya Output

Libya’s largest oil refinery at Ras Lanuf will be ready to start operations next month, acting Chief Executive Officer Abdo A. Ahmed at Libyan Emirates Refining Co. said yesterday. The plant, which can process 220,000 barrels a day of crude, was shut in March because of fighting between forces loyal to Muammar Qaddafi and rebels seeking the former leader’s ouster.

Fighting has reduced the availability of light, sweet crude, or oil with low density and sulfur content, from Libya, a member of the Organization of Petroleum Exporting Countries. The country’s output fell to 45,000 barrels a day in August, according to Bloomberg estimates. The North African nation pumped 100,000 barrels a day last month.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

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