Oil fell to a two-week low as the Standard & Poor’s 500 Index dropped and on projections that a government report will show U.S. crude inventories climbed. Crude slipped 2.2 percent as the S&P 500 declined for a second day. U.S. oil supplies rose to a six-month high last week, according to a Bloomberg News survey before an Energy Department report tomorrow. Futures touched a 2 1/2-year high yesterday as investors assessed the impact of the May 1 killing of Osama bin Laden. “Oil is down in large part because the S&P is lower,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There’s a strong correlation between oil and the S&P. We’re also anticipating that tomorrow’s report will show another build in crude-oil stocks.” Crude oil for June delivery fell $2.47 to $111.05 a barrel on the New York Mercantile Exchange, the lowest settlement since April 19. Futures are up 29 percent from a year ago. Prices declined from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles increased 3.2 million barrels to 364.2 million, the highest level since Oct. 29. June oil fell $2.60, or 2.3 percent, to $110.92 a barrel in electronic trading at 4:31 p.m. The contract surged to $114.83 a barrel yesterday, the highest intraday price since September 2008, before ending the session down 0.4 percent at $113.52. The S&P 500 Index (SPX) declined 0.3 percent to 1,356.62, and the Dow Jones Industrial Average was little changed at 12,807.51. Tomorrow’s report may show crude stockpiles climbed 2 million barrels from 363.1 million last week, according to the median estimate from 15 analysts surveyed by Bloomberg News. Supplies surged 6.16 million barrels in the week ended April 22, the most since July. Texas Power Failure Power outages last week disrupted production at Texas City, Texas, plants owned by BP Plc, Valero Energy Corp. (VLO) and Marathon Oil Corp. (MRO) which together account for almost 5 percent of U.S. refining capacity. Valero’s Corpus Christi East refinery in Corpus Christi, Texas, had a separate power failure at the end of the week that curtailed operations. “Traders may be pricing in another big crude build as a result of all of the refineries that were offline last week,” said Rick Mueller, a principal with ESAI Energy, LLC in Wakefield, Massachusetts. Bin Laden encouraged attacks on oil facilities as a way to damage the U.S. and European economies. Crude infrastructure in Saudi Arabia, holder of the world’s largest reserves, was targeted by al-Qaeda from 2002 as it sought to bring down the ruling al-Saud family. Saudi Arabian forces foiled the biggest attempted attack in 2006 on the Abqaiq oil-processing center, which handles two-thirds of the kingdom’s supply. Bin Laden Impact “There’s been a lot of speculation about what the death of Osama bin Laden will mean for the oil market,” said Peter Beutel, president of Cameron Hanover Inc., an energy-advisory company in New Canaan, Connecticut. “Right now it’s not clear that there will be any.” Brent crude for June settlement declined $2.67, or 2.1 percent, to end the session at $122.45 a barrel on the London- based ICE Futures Europe Exchange. Oil has advanced 22 percent this year in New York as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Algeria, Bahrain, Iran, Oman, Syria and Yemen. Oil in New York has increased for eight months, the longest rising streak on record. Turkish Prime Minister Recep Tayyip Erdogan promised a plan to end the conflict in Libya, after leader Muammar Qaddafi attended a funeral service for his son, who was killed on April 30 during the North Atlantic Treaty Organization’s intensifying air campaign. NATO Conditions NATO, which is enforcing a United Nations-mandated no-fly zone, has rejected a cease-fire offer from Qaddafi, saying his forces must stop attacks on civilians before it considers any truce. Much of the fighting in Libya is now centered on the rebel-held western port city of Misrata, where opposition forces last week pushed Qaddafi’s troops out of the city center. Saudi Arabian Oil Co., the world’s largest oil exporter, plans to ship a fourth cargo of a new blend of light crude oil to the Mediterranean region for possible sale to Europe, according to a person with knowledge of the program. Saudi Oil Minister Ali al-Naimi announced on March 8 that Aramco had developed two light, low-sulfur blends with specifications closer to the crude normally supplied by Libya, a fellow member of the Organization of Petroleum Exporting Countries. Libyan exports have dwindled because of the conflict in the North African country. Implied Volatility Implied volatility for at-the-money options expiring in June in New York, a measure of expected price swings in futures and a gauge of options prices, was 28.1 percent yesterday, up from 26.2 percent April 29. “We saw a lot of volatility after the announcement of bin Laden’s death,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. Oil volume in electronic trading on the Nymex was 470,630 contracts as of 3:09 p.m. in New York. Volume totaled 499,312 contracts yesterday, 31 percent below the average of the past three months. Open interest climbed to a record 1.63 million contracts. To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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