BLBG: Oil Falls as Equities Drop on Concern Recession Is Deepening
Crude oil fell, paring its largest gain in seven weeks as global stock markets declined on concern the recession is deepening.
Oil lost as much as 6.5 percent as the MSCI World Index of stocks headed toward its biggest weekly drop since November. Crude jumped 14 percent yesterday after a report showed an unexpected decrease in U.S. stockpiles last week. The March crude oil contract expires today.
“Crude is falling because of the financials,” said Chris Dillman, an analyst with Tradition Energy in Stamford Connecticut. “It was a little overdone with the run-up yesterday, and there’s expiration today.”
Crude oil for March delivery dropped $2.25, or 5.7 percent, to $37.23 a barrel at 9:07 a.m. on the New York Mercantile Exchange. Yesterday, the contract gained 14 percent to settle at $39.48 a barrel. The more-active April contract fell $2.30, or 5.7 percent, to $37.88 a barrel.
“Equities are in bad shape today and so commodities are suffering,” said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich AG in Vienna. “The economy has to recover before we see any substantial increase in oil prices.”
Barclays Capital said it was cutting its forecast for average 2009 Brent crude oil prices to $60 a barrel from $71 a barrel because of the weakening global economic outlook. The bank expects global oil demand to drop 1.25 million barrels a day this year.
“The start of sustainable price recovery may have to wait for a clearer bottoming of the economic cycle,” Barclays analysts led by Paul Horsnell said in a report yesterday.
Miner Anglo American Plc suspended its dividend and announced 19,000 job cuts, saying it expected continuing weakness in commodity prices.
Sustained Rally
Futures need to close above their five-day moving averages to make a sustained rally, broker PVM Oil Associated Ltd. said today. The April contract on the New York exchange will have to settle above its five-day average of around $39.48 a barrel, according to PVM.
Brent crude oil for April settlement lost $1.90, or 4.5 percent, to $40.09 a barrel on London’s ICE Futures Europe exchange.
A U.S. Energy Department report yesterday showed inventories dropped 138,000 barrels to 350.6 million barrels last week, the first decline this year. Analysts had forecast an increase of 3.2 million barrels, according to a Bloomberg News survey.
“The market has been used to seeing bigger-than-expected builds in U.S. supplies each week, and to get an actual negative number gave the market a fresh dose of optimism,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “Still, I can’t see anything that’s shown the demand in the market has started to pick up. I think it’s just a matter of limiting supply.”
