Oil below $90 as demand concerns grow
BY CLAUDIA ASSIS and ROBERT DANIEL, Marketwatch
SAN FRANCISCO -- Crude-oil futures extended their fall on Wednesday as traders worried about demand and ignored a largely positive weekly report pointing to a surprise decline in inventories.
A drop below $90 a barrel subjected oil to a wave of technical selling that shaved more than 3% off prices.
Crude for November delivery fell $3.36, or 3.7%, to $88.53 a barrelbl on the New York Mercantile Exchange. A close around these levels would be oil's worst in two months.
Traders looked past the supportive report from the Energy Information Administration, said Bill O'Neill, a principal with Logic Advisors in New Jersey.
"People have been so focused on geopolitical events that the supply-and-demand equation has taken a backseat," he said. "The demand outlook is still not good."
Even with Wednesday's report showing the decline, supplies are still plentiful and recent data points, such as a weak services data out of China, have called demand into question, he added.
The EIA reported a decline of 500,000 bbl in stockpiles of crude for the week ended Sept. 28. Analysts polled by Platts had expected a rise by 1.5 million bbl.
Demand this week was comparable to the four-week average but year-on-year has fallen 3.3%, according to Citi analyst Tim Evans.
Oil production was 12% above last year's level and represents the highest production since 1996, mostly due to an increase in Alaskan oil production, analysts at BNP Paribas said in a note.
"It is the prospect of higher crude output that is dampening sentiment towards U.S. crude oil prices, despite the latest reported crude stock draw," they said.
The EIA also reported gasoline supplies up 100,000 bbl, and inventories of distillates down 3.7 million bbl.
The analysts surveyed by Platts had forecast gasoline stocks unchanged, and distillate stockpiles down 400,000 bbl for the week.
Prices had traded around $89.55 a bbl minutes before the report, pared declines slightly, but resumed their fall shortly after.
Oil also ignored some mildly positive macroeconomic data in the U.S. Earlier, payroll processing firm ADP said the private sector added 162,000 jobs in September. Consensus hovered around 152,000 jobs.
A settlement in the red would be oil's second straight down session.
Prices ended lower Tuesday on uncertainty over when Spain may ask for a European Union bailout, though a weaker U.S. dollar helped temper broader losses.
The dollar moved higher Wednesday, adding to the pressures on oil. The dollar index (DXY), which measures the U.S. currency against a basket of six rivals, rose to 79.955 from 79.715 late Tuesday. The dollar gained steam as the session progressed.
A higher dollar is a negative force for dollar-denominated commodities such as oil as it makes them more expensive to holders of other currencies.
Iran was back in investors' minds Wednesday, with protests and clashes with the police in Tehran. Iran's currency has collapsed, losing 80% in the past year, as Western sanctions have battered Iran's finances.
On Tuesday, Iranian President Mahmoud Ahmadinejad admitted for the first time that oil sales have declined due to the sanctions over Tehran's nuclear program, according to reports.
The shortfall due to sanctions on Iran, however, "has been more than offset by increases in production elsewhere, in contrast to the disruption in Libya that led the International Energy Agency to coordinate an international stock release in 2011," analysts at Capital Economics said in a note.
"The leveling out in the cost of crude, which will be reflected soon in gasoline prices, should reduce the pressure for a unilateral release by the U.S. too," they added.
Among other energy futures Wednesday, natural gas for November delivery declined 18 cents, or 5.2%, to $3.35 per MMbtu.
A close in the red would snap a six-day winning streak for natural gas and bring the commodity off a 10-month high hit Tuesday.
A consensus about winter weather has emerged, pointing to mild temperatures, said Jefferies & Co. analyst Subash Chandra in a note to clients Wednesday.
A mild winter would imply inventories of 2 Tcf of natural gas in the Spring compared to 2.5 Tcf this year, Chandra said.
"Optically good, but still the second highest exit inventories on record," likely enough to stabilize gas in the $3 to $3.50 per million Btus range but not enough for $4 per million Btu," he said.
Heating oil for November delivery traded down 6 cents, or 1.8%, at $3.07 a gallon.
Gasoline for November delivery retreated 8 cents, or 2.8%, to $2.79 a gallon.
Dow Jones Newswires