BLBG: Oil Declines Most in a Week on Concern Over Economy, Swine Flu
Crude oil fell the most in a week on concern the U.S. economy will keep shrinking and the swine- flu outbreak will curtail air travel.
The economy in the world’s largest oil consumer will continue to contract “for some time,” Lawrence Summers, director of the White House National Economic Council, said yesterday. Increased output by non-OPEC producers has left the market oversupplied by about 720,000 barrels a day, Algerian Oil Minister Chakib Khelil said.
“On the downside we have weak demand worldwide that’s leading to high inventories and massive spare capacity at the OPEC,” said Eugen Weinberg, analyst at Commerzbank AG in Frankfurt. “Joining these unknowns we now have the swine flu.”
Crude oil for June delivery fell as much as $2.93, or 5.7 percent, to $48.62 a barrel in electronic trading on the New York Mercantile Exchange. It was at $48.89 a barrel at 1:39 p.m. in London.
Stocks declined around the world, Treasuries gained and the yen strengthened after the swine-flu outbreak spread beyond Mexico and the U.S. as the American government declared a public health emergency. The Dow Jones Stoxx 600 Index of European shares dropped 1.3 percent, led by airlines.
The dollar increased the most against the euro in more than a week on speculation the European Central Bank will lower interest rates at its meeting next month. The U.S. currency traded 1.1 percent higher at $1.3124 per euro, limiting the appeal of dollar-priced commodities like crude used to hedge against inflation.
Swine Flu
Air China Ltd., Singapore Airlines Ltd. and Qantas Airways Ltd. led declines by Asia-Pacific carriers on speculation the swine-flu cases may limit travel. Trips on the region’s airlines plummeted after the outbreak of Severe Acute Respiratory Syndrome in 2002 and 2003 in China, Singapore and Hong Kong.
“The airline stocks have all sunk,” said Victor Shum, a senior principal at oil industry consultants Purvin & Gertz Inc. in Singapore. “The concern is that this gets to be like SARS and then that will impact the jet-fuel markets and global economy.”
Crude prices need to be at $70 a barrel to ensure continued investment in the industry, Abdalla el-Badri, secretary-general of the Organization of Petroleum Exporting Countries, said in Algiers yesterday. Oil may reach $60 a barrel by the end of 2009, Khelil said.
OPEC Output
OPEC pumps about 40 percent of the world’s oil. The group agreed last year to cut output by 4.2 million barrels and will review production again when it meets May 28.
Saudi Arabia, the biggest producer, is under pressure from the rest of OPEC to pare output further, the kingdom’s former oil minister Sheikh Ahmad Zaki Yamani said in Cairo yesterday.
Crude prices gained last week as stock markets climbed amid optimism that the world is past the worst of the recession.
U.S. oil stockpiles rose for a seventh week to 370.6 million barrels on April 17, the highest since September 1990.
Hedge-fund managers and other large speculators are betting on falling New York oil futures for the first time in six weeks, according to U.S. Commodity Futures Trading Commission data.
Speculative net-short positions, or bets prices will fall, outnumbered long positions by 14,605 contracts on April 21, the Washington-based commission said April 24. A week earlier, traders were net-long 4,962 contracts.
Brent crude for June settlement fell as much as $2.70, or 5.2 percent, to $48.97 a barrel on London’s ICE Futures Europe exchange.
