Oil Trades Near Weekly Low as U.S. Supplies Seen Rising

By Ben Sharples - May 30, 2012 9:13 AM GMT+0700

Oil fell for a second day, heading for the biggest monthly drop in two years, before a report that may show stockpiles climbed to the highest level since 1990 in the U.S., the world’s biggest crude user.

Futures slid as much as 0.5 percent. U.S. inventories rose 800,000 barrels to 383.3 million last week, according to the median estimate of eight analysts in a Bloomberg News survey before the Energy Department report tomorrow. Prices dropped yesterday after Spain’s credit rating was cut and BNP Paribas SA reduced its 2012 forecast for West Texas Intermediate oil.

“Demand out of the U.S. and the euro zone has been very soft,” David Lennox, an analyst at Fat Prophets in Sydney, said in a telephone interview. “For the foreseeable future, barring any supply-side shocks, oil will stay around $90 a barrel. If there’s going to be any movement, it’s not likely to be up.”

Crude for July delivery decreased as much as 45 cents to $90.31 a barrel in electronic trading on the New York Mercantile Exchange, and was at $90.34 at 12:07 p.m. Sydney time. The contract yesterday slid 10 cents to $90.76, the lowest close since May 24. Prices are down 14 percent this month, the biggest drop since May 2010.

Brent oil for July settlement fell 43 cents, or 0.4 percent, to $106.25 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.91, from $15.92 yesterday.

Fuel Supplies

Oil in New York has long-term technical support at $89.83 a barrel, according to data compiled by Bloomberg. On the weekly chart, that’s the 50 percent Fibonacci retracement of the drop to $32.40 in December 2008 from an intraday record high of $147.27 in July that year. Buy orders tend to be clustered near chart-support levels.

U.S. gasoline stockpiles probably fell 250,000 barrels last week, according to the Bloomberg survey before tomorrow’s Energy Department report. Distillate supplies, a category that includes heating oil and diesel, will likely remain unchanged at 119.5 million barrels, the survey shows.

The American Petroleum Institute will release separate inventory data today. 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.

U.S. gasoline at the pump fell below year-earlier levels for the sixth straight week, the Energy Department said in a weekly retail report yesterday. The national average price for regular gasoline dropped 4.5 cents to $3.669 a gallon from a week earlier, it said.

Oil Forecast

BNP Paribas cut its 2012 price forecast for New York crude by $7 to $100 a barrel, and its estimates for Brent by $4 to $115 a barrel, as Europe’s debt crisis worsened, according to an e-mailed report. Prices will still advance in the third quarter because of sanctions against Iran and shrinking spare production capacity in the Organization of Petroleum Exporting Countries, the bank said.

Oil fell yesterday as the euro slid toward an almost two- year low after Egan-Jones Rating Co. cited a deteriorating economic outlook in Spain for its decision to lower the nation’s sovereign credit rating to B from BB-. A weaker European currency increases the cost of crude priced in dollars.

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 at akwiatkowsk2@bloomberg.net