BLBG: Oil Drops, Snapping 10-Day Gain, as Supplies Enough for Winter
By Grant Smith
Jan. 7 (Bloomberg) -- Crude oil fell in New York, snapping 10 days of gains, on speculation that rising U.S. supplies will be enough to withstand the cold snap.
The Energy Department said crude inventories rose 1.3 million barrels last week, the first increase in five weeks. Stockpiles were forecast to fall by a Bloomberg News survey. Supplies of distillate fuels such as heating oil dropped less than expected. Oil fell on speculation China’s move to slow bank lending may reduce commodity demand in the world’s second- largest energy consumer.
“There’s enough crude oil everywhere and no shortage of distillates, so even with the cold winter fundamentals are weak,” said Gerrit Zambo, a trader with Bayerische Landesbank in Munich. “Between $60 and $70 would be a more fair value. It’s only a matter of time before a correction.”
Crude oil for February delivery declined as much as 81 cents, or 1 percent, to $82.37 a barrel in electronic trading on the New York Mercantile Exchange. It was at $82.62 a barrel at 11:28 a.m. London time.
China’s central bank sold three-month bills at a higher interest rate for the first time in 19 weeks after saying its focus for 2010 is controlling the record expansion in lending and curbing price increases.
Cold Weather
Technical indicators used by traders show oil’s gains may have come too far, too fast. The 14-day relative strength index was at 69.66, after reaching 72.58 yesterday. Readings above 70 indicate prices have climbed too quickly. Oil fell 2.3 percent on Oct. 26 after the RSI rose above 70 the previous week.
“The cold weather is not the reason behind the price increase in prices, it’s just the reasoning,” Eugen Weinberg, commodity strategist with Commerzbank AG in Frankfurt, said in a television interview. “The real reason is huge paper demand from investors. I don’t think that this is sustainable and prices will drop going forward.”
Freezing weather in the U.S., China and Europe supported the 10-day rally in prices. Temperatures in the U.S. Northeast, which consumes about four-fifths of the country’s heating oil, may remain below normal through Jan. 16, according to the National Weather Service.
Northern China may see temperatures as low as minus 32 degrees Celsius (minus 26 Fahrenheit) today, the China Meteorological Administration said.
Oil declined as much as 92 cents, or 1.1 percent, yesterday after the release of the Energy Department’s inventory report. Prices later advanced 1.7 percent as the dollar dropped against the euro, spurring interest in commodities as an alternative investment.
Oil Inventories
Crude supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, surged 1.16 million barrels to 35.7 million last week, the highest level since tracking began in 2004.
Stockpiles of distillate fuel, a category that includes heating oil and diesel, slipped 233,000 barrels to 159 million, 16.1 percent above the five-year average level, according to the Energy Department. A 1.85 million-barrel drop was estimated.
Brent crude oil for February settlement fell as much as 83 cents, or 1 percent, to $81.06 a barrel on the London-based ICE Futures Europe exchange. It was at $81.36 at 11:06 a.m. London time. The contract climbed 1.6 percent to close at $81.89 yesterday.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
