MW: Oil falls below $87, set for sharp monthly loss
By Myra P. Saefong and V. Phani Kumar, MarketWatch
SAN FRANCISCO (MarketWatch) — Crude-oil futures fell Thursday, ready to end the month sharply lower, pressured by lingering worries about global demand against a backdrop of continuing European debt troubles, mostly disappointing economic data and a report showing a bigger-than-expected rise in U.S. crude supplies.
Traders also digested government data on natural gas, which showed an increase on the high end of expectations.
The July contract for light, sweet crude oil CLN2 -1.36% gave up $1.27, or 1.5%, to $86.55 a barrel on the New York Mercantile Exchange. Prices sank $2.94 on Wednesday to their lowest close since October, amid raging worries about Spain and the outlook for the euro zone.
Futures prices were on course to end May with losses in excess of 17%.
“We are seeing broad-based disappointment among a myriad of economic indicators in the U.S., euro zone, and India — from higher jobless claims and stunted GDP growth in the U.S., and India’s economy looking more like a turtle than a jet engine than in the past,” said Seth Rabinowitz, who covers commodities as a partner at Silicon Associates.
“Fund managers have put their money on direct flights to safe havens in droves, leaving oil sitting alone on the beach,” he said.
Over in Europe, the European Commission called Wednesday for a creation of a banking union, which was Thursday backed by European Central Bank President Mario Draghi. Read more on Draghi.
The July futures for Brent UK:LCON2 -1.50% , Europe’s benchmark oil contract, traded at $101.80 a barrel on ICE Futures London, down $1.67, at last check.
In the U.S., the pace of hiring in private jobs has slowed. So far in the second quarter, the average monthly gain for private-sector payrolls is 123,000, compared with a pace of more than 200,000 seen for the U.S. economy in the first quarter, according to Automatic Data Processing Inc. Read more on ADP.
An index that measures business condition in the Chicago region fell in May to its lowest since September 2009 and separate data showed that the U.S. economy grew at a 1.9% pace in the first quarter, slower than the 2.2% rate initially reported. Read more on GDP.
“This fresh downward pressure we see [in oil] is not about global supply risk which has already been priced in, but is rather about demand weakness,” said Rabinowitz.
“Although we will end the month with a sharp decline, we should see support near the psychologically significant $100 mark, considering that’s how the market has behaved in the past and repetitive Saudi declarations about $100,” he said. “The chance for an oil recovery although small does still have a pulse, but considering how slim that likelihood is we are readying its toe-tag at this point.”
Supply figures
On Thursday, the U.S. Energy Information Administration reported a 2.2 million barrel rise in U.S. crude supplies for the week ended May 25. Data were delayed by a day because of Monday’s Memorial Day holiday.
Motor gasoline supplies, however, fell by 800,000 barrels, while distillate stocks dropped 1.7 million barrels in the latest week, the EIA report said.
Analysts polled by Platts expected a climb of 100,000 barrels in crude supplies. They also forecast unchanged inventories of gasoline and a rise of 150,000 barrels in distillate stocks.
Late Wednesday, the American Petroleum Institute reported that crude-oil supplies fell by 353,000 barrels. Read more on API.
Against that backdrop, the June gasoline RBM2 -1.35% contract was down 1.4% at $2.82 per gallon, while the heating-oil HOM2 -1.22% contract for the same month was down 1.1% at $2.71 per gallon. The June contracts for the petroleum products expire at the close of the trading session.
July natural-gas futures NGN12 +1.16% tacked on 2 cents to $2.44 per million British thermal units, though it traded a bit weaker immediately after the latest supply data.
The EIA on Thursday reported that natural-gas inventories rose by 71 billion cubic feet for the week ended May 25. Analysts polled by Platts forecast a climb of between 67 billion and 71 billion cubic feet.
Total stocks now stand at 2.815 trillion cubic feet, up 732 billion cubic feet from the year-ago level, data showed.
Recent strength in the U.S. dollar has put broad pressure on the dollar-denominated commodities sector. At last check, the ICE dollar index DXY +0.12% , a measure of the greenback’s performance against a basket of six other major currencies, stood at 83.128, up from 83.053 in North American trade Wednesday. Read more on currencies.
Myra Saefong is a MarketWatch reporter based in San Francisco.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
