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Crude Oil Declines on Concern Economy Failing to Recover

Published: July 6, 2012 | 8:55 am
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Oil fell a second day in New York, trimming a weekly gain, after interest-rate cuts in Europe and China failed to assure investors the moves will be enough to boost economic growth and support demand.

Futures slid as much as 1.6 percent, extending yesterday’s 0.5 percent drop, after European Central Bank President Mario Draghi said some “downside risks to the euro-area economic outlook have materialized” as the ECB cut rates to a record low. The People’s Bank of China also reduced borrowing costs. Data today may show the pace of hiring in the U.S. accelerated in June while unemployment was unchanged. Brent crude slipped amid speculation Norway’s government will stop a strike by energy workers.

“The growth outlook has been bleak,” said Thina Saltvedt, an analyst at Nordea AB in Oslo, who predicts the U.S. jobs data will be lower than forecast. “We expect to see some more soft data from the world’s largest oil consumer before we see a turnaround for the better later this summer.”

Oil for August delivery fell as much as $1.35 to $85.87 a barrel in electronic trading on the New York Mercantile Exchange and was at $86.14 at 8:54 a.m. London time. Prices have risen 1.4 percent this week and are heading for a second weekly gain, the first back-to-back increase since April. Crude is down 13 percent this year.

Brent oil for August settlement declined 97 cents, or 1 percent, to $99.73 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate was at $13.59, compared with $13.48 yesterday.

Norway Strike
A lockout planned for July 9 by the Norwegian Oil Industry Association, which includes Statoil ASA, Exxon Mobil Corp. and BP Plc, will probably force the government to intervene to end the walkout as it did in 1997, 2000 and 2004, according to analysts including Teodor Sveen Nilsen from Swedbank AB in Oslo. Norway produces about 12 percent of Europe’s oil, according to BP’s Statistical Review of World Energy.

Energy workers have been on strike since June 24 in a dispute over pensions. The action has led to the loss of 2.58 million barrels of crude, costing the government and companies 2.25 billion Norwegian kroner ($375 million), Jan Hodneland, chief negotiator of the industry association, said by phone yesterday from Stavanger.

Oil Stockpiles
U.S. payrolls increased by 100,000 workers last month after a 69,000 gain in May, according to the median forecast of 84 economists surveyed by Bloomberg News ahead of Labor Department data today. The jobless rate probably remained at 8.2 percent.

U.S. oil stockpiles dropped 4.3 million barrels last week, a report from the Energy Department showed yesterday. They were forecast to decline 2.3 million barrels, according to a Bloomberg survey of analysts. Gasoline inventories rose 151,000 barrels, the report showed. They were projected to gain 1 million barrels. Distillate supplies, a category that includes heating oil and diesel, fell 1.1 million barrels compared with an estimated 1 million barrel increase.

Oil in New York may increase next week on signs of an economic recovery in the U.S. and as inventories fell the most in six months, a Bloomberg survey showed. Thirteen of 27 analysts, or 48 percent, forecast crude will rise through July 13. Eleven respondents, or 41 percent, predicted that futures will decline and three said there will be little change in prices. Last week, 38 percent of analysts projected a gain.

CME Group Inc. boosted margins on crude and natural-gas futures contracts on Nymex as of the close of business July 9, according to an e-mailed statement yesterday. The initial margin for speculators in oil futures for the month nearest to expiration will increase to $6,885 per contract from $6,210, the notice shows.

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