Oil tumbled below $80 a barrel for the first time in eight months on weak economic data that increased concern that demand will slow with supplies at the highest level in almost 22 years.
Futures dropped as much as 2 per cent as manufacturing slumped in the U.S., Europe and China and more Americans than forecast filed applications for unemployment benefits. Sales of previously owned U.S. homes declined in May. U.S. oil stockpiles rose last week to the most since 1990, the Energy Department reported yesterday.
“It doesn’t look like the economy is taking off anytime soon and oil demand is pretty poor,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “That’s hurting oil prices. There is certainly a huge build overall across the oil complex.”
Crude futures for August delivery fell $1.37, or 1.7 per cent, to $80.08 a barrel at 10:34 a.m. on the New York Mercantile Exchange after dropping to $79.82, the lowest intraday level since Oct. 6. Prices have slumped 27 per cent from this year’s settlement high of $109.77 on Feb. 24.
Brent oil for August settlement decreased $1.36, or 1.5 per cent, to $91.33 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium to West Texas Intermediate of $11.25 after closing at $11.24 yesterday, the lowest level since January.
Manufacturing Shrinks
Manufacturing in the Philadelphia region shrank in June at the fastest pace in almost a year, the Federal Reserve Bank of Philadelphia’s general economic index showed. The report covers eastern Pennsylvania, southern New Jersey and Delaware.
Euro-area manufacturing output shrank at the fastest pace in three years in June and a Chinese output gauge indicated contraction as Europe’s worsening fiscal situation clouded global economic-growth prospects.
“You’ve got huge supplies, a European debt crisis, and a global slowdown,” said Phil Streible, a Chicago-based commodities broker at RJO Futures.
U.S. jobless claims decreased by 2,000 to 387,000 in the week ended June 16, the Labor Department said. The median forecast of economists surveyed by Bloomberg News called for 383,000. The four-week average, a less volatile measure, climbed to the highest level of the year.
Purchases of existing U.S. properties dropped 1.5 per cent to a 4.55 million annual rate last month, the National Association of Realtors said.
Crude Inventories
U.S. crude inventories increased 2.9 million barrels to 387.3 million barrels last week, the highest level since July 1990, the Energy Department reported yesterday. Inventories of distillate fuel and gasoline also increased.
“There is no catalyst here to spike the price,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “We know that demand is still going to be relatively weak and we know that we have plenty of supply.”
Federal Reserve officials yesterday cut their estimates for 2012 growth after last month’s slowdown in hiring and see little progress on unemployment during the rest of the year. The central bank lowered its central tendency estimate for U.S. 2012 gross domestic product growth to 1.9 per cent to 2.4 per cent from 2.4 per cent to 2.9 per cent in April.
Oil demand in the U.S., the world’s largest consumer, will drop for a second year in 2012, the Energy Department said in its Short-Term Energy Outlook June 12. Oil consumption in Europe will fall both this year and next, and slower growth in China could also curb demand, according to the report.
