BLBG: Crude Oil Trades Near $73 as Fuel Demand May Be Slow to Recover
By Ben Sharples and Christian Schmollinger
Feb. 5 (Bloomberg) -- Crude oil traded near $73 a barrel after falling yesterday as an increase in U.S. jobless claims raised concern fuel consumption may be slow to recover and a stronger dollar reduced demand for commodities.
Oil had its biggest drop in six months yesterday as the dollar climbed to the highest level against the euro since May. U.S. equities dropped after more Americans filed claims for unemployment insurance last week.
“The jobless claims rose more than expected and that has put a dampener on the outlook for U.S. oil demand,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “There are also concerns around the possibility of a sovereign downgrade of countries such as Spain and Portugal to go with the problems we have got in Greece.”
Crude oil for March delivery was at $73.46 a barrel, up 32 cents, in electronic trading on the New York Mercantile Exchange at 3:18 p.m. Singapore time. It earlier fell as much as 33 cents, or 0.5 percent, to $72.81 a barrel.
Yesterday, the contract declined $3.84, or 5 percent, to $73.14 a barrel, the biggest drop since July 29. Prices are set to gain 0.7 percent this week.
“The equities and energy markets heard reality calling,” said Mike Sander, an investment adviser at Seattle-based Sander Capital Advisors. “The euro-zone looks like a possible bust and unemployment is still really bad.”
European Central Bank President Jean-Claude Trichet said Yesterday that the economic outlook is subject to “uncertainty.” The euro has lost 4 percent this year against the dollar on concern Greece and other so-called peripheral nations will face increasing difficulty in curbing budget deficits that are in excess of European Union limits.
Dollar Strength
The dollar traded at $1.3721 per euro at 3:15 p.m. Singapore time, from $1.3723 yesterday after touching $1.3669, the weakest level since May 20. A stronger greenback curbs the appeal of commodities as an alternate investment.
“The debt issue in Greece is for real and is not going away,” Sander said. “If a first-world country such as Greece defaults it could lead the way for others such as Portugal and Spain. As the euro falls, the dollar will strengthen.”
The S&P 500 lost 3.1 percent to 1,063.11 in New York and the Dow Jones Industrial Average dropped 2.6 percent to 10,002.18. U.S. initial jobless applications rose to 480,000 in the week ended Jan. 30, the most in seven weeks, from 472,000 the prior week, the Labor Department reported yesterday.
ConocoPhillips, the third-largest U.S. oil company, will consider shutting refineries that can’t cover their costs after the recession cut demand for transportation fuels, Clayton Reasor, vice president of corporate affairs, said at a Credit Suisse energy conference in Vail, Colorado, yesterday.
Margins Squeezed
Margins have been squeezed by reduced demand, leading Valero Energy Corp. to shutter refineries in Aruba and Delaware City. Sunoco Inc. closed a plant in Westville, New Jersey, and Western Refining Inc. shut a facility in Bloomfield, New Mexico.
The profit from turning three barrels of crude oil into two barrels of gasoline and one barrel of heating oil in the U.S. was $8.31 a barrel today, down 35 percent from six months ago.
The Reuters/Jefferies CRB Index of 19 commodities declined 2.6 percent to 263.67 yesterday, the lowest level since Oct. 9.
Traders today will be watching for data on the U.S. unemployment rate, which is expected to hold steady at 10 percent. New information on changes in non-farm payrolls is also due at 9:30 a.m. in Washington D.C. Expectations are for an increase of 13,000 employees for January.
The jobs report “is going to set the stage for the rest of the month,” said Stephen Schork, president of Schork Group Inc., an energy-trading consultant in Villanova, Pennsylvania. “It could potentially light a fire under this market and be the slingshot that gets us to $80. If there’s a substantial loss in jobs, look out below, because $60, here we go.”
Brent oil for March settlement was at $72.26 a barrel, up 13 cents, on the London-based ICE Futures Europe exchange at 3:19 p.m. Singapore time. It earlier fell as much as 50 cents, or 0.7 percent, to $71.63 a barrel. The contract declined $3.79, or 5 percent, to settle at $72.13 a barrel yesterday.
To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net
