Oil Falls a Second Day as Supply Increase Signals Slow Demand

[dailyforexnews]

Oil fell for a second day in New York after an increase in U.S. crude and gasoline inventories raised concern fuel demand has yet to recover.

Crude oil declined the most in a month yesterday as an Energy Department report showed that U.S. gasoline stockpiles climbed 1.62 million barrels last week, the Energy Department said. A 1 million-barrel drop was forecast, according to a Bloomberg News survey. Prices also dropped as the dollar gained against the euro.

“In the past, when we got bearish inventory reports, the market simply put aside the bearish reports,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. “This time the market didn’t ignore it, the market reacted to it because the other economic signals were also bearish - equities pulled back and the dollar gained strength.”

Crude oil for December delivery fell as much as 43 cents, or 0.6 percent, to $77.03 a barrel, and traded at $77.36 at 4:08 p.m. Singapore time on the New York Mercantile Exchange. Yesterday, the contract dropped $2.09, or 2.6 percent, to $77.46, the lowest settlement since Oct. 14. Prices have gained 73 percent this year.

The dollar was at $1.4727 per euro from $1.4706 yesterday after reaching $1.4683, the strongest level since Oct. 12. A stronger dollar reduces the appeal of commodities to investors looking for an inflation hedge.

“Market sentiment has taken a significant turn to the negative side,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney. “We have seen the dollar claw back some ground on the back of that.”

Crude Supplies

Inventories of crude oil rose 778,000 barrels to 339.9 million in the week ended Oct. 23, the Energy Department report showed yesterday. Supplies of distillate fuel, a category that includes heating oil and diesel, declined 2.13 million barrels to 167.8 million. Inventories were 29 percent higher than the five-year average for the week, the department said.

Refineries operated at 81.8 percent of capacity, up 0.7 percentage point from the previous week, the report showed. Refiners produced 8.83 million barrels of gasoline a day, up 4.5 percent from the prior week.

Fuel demand dropped 0.8 percent to an average of 18.5 million barrels a day last week, the report showed. Imports of crude oil increased 2.2 percent to 8.89 million barrels a day last week, the report showed. Fuel imports climbed 6.3 percent to 2.54 million barrels a day.

Equity Markets

Asian stocks dropped, extending a global sell-off, after PetroChina Co. had its biggest decline in seven months and the head of Australia & New Zealand Banking Group Ltd. said the Australian economy is “still fragile.” New-home sales also unexpectedly fell in the U.S.

The MSCI Asia Pacific Index slipped 1.4 percent to 114.79 as of 2:50 p.m. in Tokyo, extending a two-day, 2.9 percent decline. The Standard & Poor’s 500 Index retreated 2 percent in New York yesterday, while the Dow Jones Industrial Average lost 1.2.

Brent crude oil for December settlement fell as much as 29 cents, or 0.4 percent, to $75.57 a barrel on the London-based ICE Futures Europe exchange, and traded at $75.87 at 4:09 p.m. Singapore time. Prices dropped $2.06, or 2.6 percent, to end the session at $75.86 a barrel yesterday.