BLBG: Crude Oil, Gasoline Tumble as Savings Rate Gains, Stocks Drop
June 26 (Bloomberg) -- Crude oil and gasoline tumbled after the government said the U.S. savings rate climbed to the highest level in more than 15 years, an indication that the economic recovery will be slow to gather strength.
Energy futures dropped after the Commerce Department said that household savings rate increased to 6.9 percent, the highest since December 1993. Equities slipped as the data spurred speculation that the U.S. economy will continue to contract as consumers refrain from making purchases.
“The increase in the savings rate is a bit of a reality check,” said John Kilduff, senior vice president of energy at MF Global in New York. “The economy is very dependent on spending, so the savings rate is an indication that demand will be under pressure in the months ahead.”
Crude oil for August delivery fell $1.07, or 1.5 percent, to settle at $69.16 a barrel at 2:50 p.m. on the New York Mercantile Exchange. The August contract declined 1.2 percent this week. Prices have increased 55 percent this year.
Gasoline for July delivery declined 2.42 cents, or 1.3 percent, to end the session at $1.8741 a gallon in New York.
The Standard & Poor’s 500 Index dropped for the first time in four days. The S&P 500 fell 0.2 percent to 918.69. The Dow Jones Industrial Average slipped 0.4 percent to 8,438.16.
U.S. business activity is probably contracting for a fourth consecutive quarter, according to economists surveyed by Bloomberg News. The unemployment rate, which reached a 25-year high of 9.4 percent last month, probably rose to 9.6 percent in June, economists predicted ahead of the government’s monthly jobs report due next week.
Amnesty Offer
Oil prices rose above $71 earlier today as Nigerian militants continued attacks on oil installations in Africa’s largest crude-producing country. Nigeria is offering to free the leader of the main insurgent movement in the oil-rich Niger Delta region.
“Prices have slipped because equities are going south and the offer of amnesty for a Nigerian rebel leader,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “There has been a substantial move higher and the market appears to have exhausted itself.”
Interior Minister Godwin Abbe couldn’t say today when Henry Okah, leader of the Movement for the Emancipation of the Niger Delta, or MEND, would be freed. The militant group had made Okah’s release a precondition for talks to end armed attacks it is leading in the southern oil region.
MEND has stepped up a sabotage campaign against Nigeria’s oil industry after a military offensive against its positions began last month. Oil facilities run by Royal Dutch Shell Plc, Chevron Corp. and Eni SpA have been damaged during the campaign.
Brent Contract
Brent crude oil for August settlement slipped 86 cents, or 1.2 percent, to end the session at $68.92 a barrel on London’s ICE Futures Europe exchange.
“It’s going to be hard holding gains above $70 given the fundamentals,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, energy consultant. “We started the month of June at about $68 and it looks like we are going to end the month close to there.”
Declining crude oil and gasoline prices helped send the Reuters/Jefferies CRB Index of 19 raw materials lower for the first time in four days. The index dropped 0.8 percent to 251.31.
U.S. gasoline supplies rose 3.87 million barrels to 208.9 million last week, according to an Energy Department report on June 24. Diesel stockpiles climbed 2.18 million barrels to 111.6 million, the highest since at least 1993, the report showed.
Lack of Evidence
“You don’t see any evidence of an economic recovery in the petroleum data,” said Bill O’Grady, the chief markets strategist at St. Louis-based Confluence Investment Management LLC, an investment advisory and management firm. “The diesel number is downright ugly. If there were a recovery, you wouldn’t expect to see record diesel stocks.”
Fuel consumption fell 5.5 percent to 17.9 million barrels a day last week, the biggest drop since January, the report showed. Daily gasoline demand declined 2.4 percent, to 9.13 million barrels.
“The market is still responding to financial flows,” said Edward Morse, head of economic research at LCM Commodities LLC in New York. “Fundamentals continue to be weak with no sign of strength ahead.”
Oil may decline next week, according to a Bloomberg News survey. Twenty-one of 38 analysts surveyed, or 55 percent, said futures will drop through July 2. Nine respondents, or 24 percent, forecast that the market will be little changed and eight said prices will rise. Last week, 44 percent of analysts said crude oil would fall.
Crude oil volume in electronic trading on the Nymex was 272,066 contracts as of 3:13 p.m. in New York. Volume totaled 457,816 contracts yesterday, 7.7 percent less than the average over the past three months. Open interest was 1.15 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
